Business Asset Disposal Relief 2026/27: New 14% Rate Explained

Business Asset Disposal Relief -- formerly known as Entrepreneurs' Relief -- remains one of the most valuable tax breaks available to UK business owners, but a rate change from April 2025 means careful planning matters more than ever. If you are thinking about selling your business, understanding exactly how BADR works, what qualifies, and how to structure a disposal could save you tens of thousands of pounds.

What Is Business Asset Disposal Relief?

BADR is a capital gains tax relief that reduces the CGT rate on qualifying gains from the disposal of business assets. Without BADR, gains on the sale of a business would be taxed at 18% for basic rate taxpayers or 24% for higher and additional rate taxpayers in 2026/27. With BADR, the rate is 14% regardless of your income tax band, up to a lifetime limit of £1 million in qualifying gains.

The relief is designed to encourage entrepreneurship by ensuring that business builders pay less tax when they eventually sell or wind up their business. However, the government has been tightening the rules and raising the rate over recent years. The original Entrepreneurs' Relief rate was 10% with a £10 million lifetime limit; that limit was cut to £1 million in 2020, the rate rose to 14% in April 2025, and a further increase to 18% is planned for April 2026.

For a business owner selling a company for a £500,000 gain in 2026/27, BADR saves £50,000 in tax compared with paying the 24% higher-rate CGT (saving the difference between 14% and 24% on £500,000 equals £50,000).

Qualifying Conditions for Company Shareholders

To claim BADR on the disposal of company shares, you must meet all of the following conditions throughout the 2 years ending on the date of disposal:

5% shareholding. You must own at least 5% of the ordinary share capital of the company and at least 5% of the voting rights. This threshold catches out some founders who have diluted their stake through investment rounds.

Officer or employee. You must be an officer (director or company secretary) or employee of the company. Passive shareholders who are not involved in the business do not qualify.

Trading company. The company must be a trading company or the holding company of a trading group. Investment holding companies, companies that derive the majority of their income from investments, or companies with substantial non-trading activities do not qualify.

2-year holding period. All conditions must have been met for a continuous 2-year period ending on the disposal date.

Qualifying Conditions for Sole Traders and Partnerships

A sole trader or business partner can claim BADR on the disposal of the whole or part of their business, subject to similar conditions:

The business must be a trading business -- not an investment activity. You must have owned and operated the business for at least 2 years before the date of disposal. This 2-year clock runs from when you started the business, not when you acquired specific assets within it.

On closure of a business, assets sold within 3 years of cessation can still qualify for BADR, provided the 2-year trading condition was met before cessation.

Qualifying assets include goodwill, plant and machinery, stock, and other business assets. Purely investment assets held alongside a trading business do not qualify.

The £1 Million Lifetime Limit

Every individual has a single £1 million lifetime limit for BADR. This limit applies across all qualifying disposals over your entire lifetime -- it is not refreshed each tax year and does not reset when you start a new business.

If you sold a previous business and claimed BADR on a £400,000 gain, you have £600,000 of lifetime limit remaining. A subsequent business sale generating a £700,000 gain would see £600,000 taxed at 14% (BADR) and £100,000 taxed at the standard CGT rate (18% or 24% depending on your income).

Tracking your cumulative BADR usage is important. HMRC maintains this record but you should keep your own records and calculate your remaining lifetime limit before any disposal.

Anti-Forestalling Rules

When the government announced the April 2025 rate rise in the October 2024 Autumn Budget, it also introduced anti-forestalling provisions. These target arrangements where contracts were entered into or completed after the Budget announcement (30 October 2024) but before 6 April 2025, with the specific intention of locking in the old 10% rate.

HMRC can look behind unconditional exchange of contracts to assess whether the arrangement was commercially driven or was entered into purely to benefit from the lower rate. Genuine commercial transactions that happened to complete before the rate change are not affected.

The Future Rate Rise to 18%

The government has announced that BADR will rise to 18% from 6 April 2026, aligning it with the lower residential property CGT rate. This further increase means that business owners who are close to a sale should factor the timing of their exit very carefully.

Selling in the 2025/26 tax year (before 6 April 2026) locks in the 14% rate. Selling in 2026/27 or later means paying 18%. On a £1 million qualifying gain, the difference between 14% and 18% is £40,000 -- a significant sum that may influence timing decisions for owners whose businesses are sale-ready.

Associated Disposals and Assets Used in a Business

If you personally own assets that are used in your company or partnership -- for example, a commercial building or piece of equipment -- you may be able to claim BADR on those assets under the associated disposals rules. The conditions are:

The asset must have been used in the business throughout the period of its use. You must also dispose of at least a 5% stake in the company or partnership (a material disposal) at the same time. Rent paid by the business to you for use of the asset may restrict the amount of BADR available.

Associated disposals are a useful planning tool for business owners who have historically held property or other assets personally rather than through the company.

Planning Considerations

Use the annual exempt amount first. Your £3,000 annual CGT exempt amount reduces your taxable gains before BADR is applied. Offset any other smaller gains (for example, from share dealings or investment property) against the exempt amount, preserving as much of the exempt amount as possible for non-BADR gains.

Consider Investors' Relief. Outside investors who hold new ordinary shares in an unlisted trading company for 3 or more years may qualify for Investors' Relief at 14% (also rising to 18% in April 2026), with a separate £1 million lifetime limit. If you have outside investors in your business, make sure they are aware of their own relief entitlement.

Timing of disposal. Where you have the commercial flexibility to choose your tax year of disposal, the BADR rate applicable in that year matters. The planned April 2026 increase makes 2025/26 a potentially advantageous year for completions.

BADR remains a meaningful relief for UK business owners despite successive rate increases. Understanding the qualifying conditions, your remaining lifetime limit, and the implications of the upcoming rate rise will help you structure your exit to minimise your tax bill while remaining fully compliant.