Business asset disposal relief explained

Business asset disposal relief is a Capital Gains Tax break for people selling all or part of a qualifying business. It was called entrepreneurs relief until HMRC renamed it on 6 April 2020. It cuts the CGT rate on qualifying gains to 18% for disposals from 6 April 2026.

There is a £1 million lifetime limit, and you must claim it yourself.

The reason this relief exists is to reward people who build and then sell a business. Sell a trading company or your share of a partnership and the gain would normally be taxed at the higher standard CGT rate of 24%.

Drop that to the reduced 18% rate and, on a £1 million gain, you keep roughly £60,000 that would otherwise go to HMRC. The catch is that business asset disposal relief is not given automatically, and the qualifying conditions are stricter than most owners expect.

This guide covers who qualifies for business asset disposal relief and what it is worth this tax year. It also follows the rules that mirror HMRC eligibility guidance.

It then explains exactly how to claim. The figures here apply to disposals from 6 April 2026 onward.

Get the conditions wrong, or miss the deadline, and a valuable saving simply disappears.

What business asset disposal relief actually does

Sell a business and you usually face Capital Gains Tax on the profit. Business asset disposal relief replaces the standard rate with a single reduced rate on qualifying gains.

That reduced rate currently sits at 18% for disposals made on or after 6 April 2026.

The standard CGT rates that would otherwise apply are 18% within the basic rate band and 24% above it. The relief therefore matters most to higher-rate gains.

Put plainly, on a large gain business asset disposal relief shaves a meaningful slice off the bill. That is the saving against paying full Capital Gains Tax on selling a business.

It covers two broad situations. Selling part or all of a trading business, and selling shares in a trading company you work for.

Both routes have their own conditions, and frankly, this is where a lot of owners come unstuck. The relief is generous, but only if every box is ticked before the sale completes.

Entrepreneurs relief and BADR: same relief, new name

If you have been researching this, you have probably seen two names. So what is entrepreneurs relief, and how does it relate to BADR?

They are the same thing. HMRC renamed entrepreneurs relief to business asset disposal relief from 6 April 2020 — the relief itself carried on, just under a new label.

The entrepreneurs relief vs BADR question trips people up because older articles, accountants, and even some forms still use the original wording. There is no separate relief to chase.

BADR is simply the current name for what used to be called entrepreneurs relief.

One thing did change beyond the name. The lifetime limit was cut from £10 million to £1 million for disposals from 11 March 2020.

Historic guidance quoting the old ceiling is out of date.

The eligibility tests for an entrepreneurs relief sole trader claim and a modern BADR claim are, in substance, the same. If a source predates 2020 the rate it quotes is also likely wrong — the reduced rate has risen in stages since then.

Who qualifies, and the two-year ownership test

The single biggest factor in BADR eligibility is time. Most claims hinge on a continuous two-year qualifying period ending on the date of disposal.

For a sole trader or business partner, the test is ownership throughout the two years up to the date you sell.

If you are a sole trader, the sole trader tax position is simple. You are selling a business you have run for at least two years, and partners are tested the same way on their share.

Closing a company

BADR closing a company works on the same two-year basis as a sale, with one addition. You must dispose of the business assets within three years of trading ceasing.

That window catches people who wind down slowly. Drag the disposals past it and the relief on those assets is lost, even though the trading history qualified.

Assets you loaned to the business

An asset you owned personally but let the business use can also qualify when sold alongside the business. You must dispose of at least 5% of the business, and it must have used the asset for at least a year before the sale.

HMRC calls this an associated disposal. One trap: if the business paid you rent for the asset, the relief on that gain can be restricted in proportion to the rent.

Those are the core business asset disposal relief conditions for unincorporated businesses. Selling shares in your own company is a different test, and it catches a lot of owners out.

The BADR shares 5% rule for company directors

If you are selling shares in your own company the rules tighten. A separate shareholding test applies, and it catches a lot of owners out.

For BADR company directors and employees, two things must hold for the full two-year qualifying period.

You must be an officer or employee of the company. The company must be a trading company, or the holding company of a trading group.

On top of that sits the BADR shares 5% rule. Throughout that period you must hold at least 5% of the ordinary share capital and meet the wider 5% economic tests.

In practice you must have, for at least two years up to the sale:

• at least 5% of the ordinary share capital and voting rights;
• entitlement to at least 5% of distributable profits and assets on a winding up; and
• entitlement to at least 5% of the proceeds if the whole company were sold.

Where a new share issue takes your holding below 5%, an election can preserve relief. It treats the shares as sold and reacquired just before the issue.

If the company has stopped trading you can still qualify, provided you sell within three years of trading ceasing.

What the relief is worth

This is where the value becomes concrete. The reduced rate applies to qualifying gains up to a £1 million BADR limit.

That limit is the lifetime cap, not an annual one.

The BADR lifetime limit means every qualifying disposal you ever make counts towards the same £1 million pot. Use £400,000 on one sale and you have £600,000 of relief left for any future qualifying sale.

Take a higher-rate gain of £1 million on a company sale. At the standard 24% rate the CGT would be roughly £240,000.

At the reduced 18% rate it is around £180,000 which is a saving in the region of £60,000 on a single disposal.

Once you pass the £1 million ceiling, gains above it are taxed at the normal rates. That is the BADR vs capital gains tax trade-off in a nutshell: a reduced rate up to the cap, standard rates beyond it.

A point worth flagging: the reduced rate has risen in recent years. Anyone modelling BADR on selling a business should confirm the rate for the exact tax year of disposal before relying on a figure.

A worked business asset disposal relief example

Numbers make this clearer than any rule. Take a sole trader selling their business in the 2026 to 2027 tax year for a £500,000 gain, with the full annual allowance available.

The calculation runs as follows:

• Step 1. Start with the qualifying gain of £500,000.
• Step 2. Deduct the £3,000 Capital Gains Tax annual exempt amount, leaving £497,000.
• Step 3. Apply the 18% reduced rate, giving a tax bill of £89,460.
• Step 4. Compare with the 24% standard rate on £497,000, which is £119,280.

The relief saves roughly £29,820 on this single sale. The gain sits well inside the £1 million lifetime limit, so the whole amount qualifies and relief remains for future disposals.

Treat this as illustrative only — the exact figures depend on your other gains, your income, and the allowance for the year. There is no official business asset disposal relief calculator, so any online tool is a rough guide at best.

How to claim business asset disposal relief

Knowing how to claim business asset disposal relief matters as much as qualifying for it, because the relief is not applied for you automatically.

The standard route is your Self Assessment tax return. Claiming BADR on self assessment means completing the capital gains pages and entering the relief against the qualifying disposal.

If you do not file a return that covers it, you can instead make the claim by completing Section A of the GOV.UK HS275 helpsheet. The HS275 helpsheet is the route HMRC sets out for claims made outside a return.

The form itself is straightforward enough: the hard part is usually the eligibility rather than the paperwork. Most claims go through the return, and the helpsheet is only needed where a return does not cover the disposal.

There is no cap on how many times you can claim across your life, only on the total relief. So a series of qualifying sales can each be claimed until the lifetime limit is used up.

Because the claim usually rides on your Self Assessment return, getting that return right is what secures the relief. A separate written claim can also be needed in some cases.

Deadlines, and why missing one costs you

There is a hard cut-off, and missing it is one of the most expensive mistakes you can make with this relief.

The business asset disposal relief deadline is the 31 January nearly two years after the end of the tax year of disposal. GOV.UK sets it out year by year: a disposal in the 2026 to 2027 tax year must be claimed by 31 January 2029.

Miss that date and the relief is gone — there is no automatic fallback, and you pay the full standard rate instead.

This is why timing the sale itself matters too. The reduced rate is fixed by the date of disposal.

So the BADR rate 2026 disposals attract is set by when the deal completes, not when you claim.

Knowing the business asset disposal relief rate for your year is the first safeguard. Diarising the claim date the moment a sale completes is the second.

Check this before you claim BADR

The short version: business asset disposal relief is one of the more valuable reliefs available to business owners. It is worth getting right rather than missing.

Confirm the two-year qualifying period is met and check the 5% tests if you are selling company shares. Note the claim deadline as soon as a sale completes.

If you are a director, the company directors guide covers the wider tax picture around a disposal.

The relief still cuts the rate well below standard CGT up to the £1 million lifetime limit. It just has to be claimed, claimed correctly, and claimed on time.

Check your own circumstances against the current GOV.UK guidance before you act, and confirm the rate for the exact tax year your disposal falls in.

Key Takeaways

The BADR essentials to remember are:

• Business asset disposal relief reduces the Capital Gains Tax rate on qualifying business sales, currently 18% for disposals from 6 April 2026.
• It is the same relief once called entrepreneurs relief, renamed by HMRC from 6 April 2020.
• Most claims need a continuous two-year qualifying period, plus the 5% shareholding tests for company share sales.
• Relief applies up to a £1 million lifetime limit; gains above it are taxed at standard CGT rates.
• You must claim it yourself, via Self Assessment or the HS275 helpsheet, by the relevant 31 January deadline.

Treat every figure here as a starting point and verify it against current GOV.UK guidance before you rely on it.

Common Business Asset Disposal Relief Questions

These five questions cover business asset disposal relief on spouses and the lifetime limit, goodwill, EMI share options, trading company status and furnished holiday lets.

Can my spouse and I each get a separate £1 million limit?

Yes. The lifetime limit applies per individual.

A spouse or civil partner has their own separate £1 million, so a couple can potentially shelter £2 million between them.

That only works if each person genuinely meets the conditions in their own right, including the relevant shareholding or ownership tests.

Where both already have an interest in the business there can be real planning value. The structure has to be in place well before any sale.

Does selling goodwill to my own company qualify?

Usually not, and this is a well-known trap. Since 3 December 2014 the relief has been restricted on goodwill disposals.

It applies when you transfer an unincorporated business to a close company you control.

In plain terms, you cannot sell your sole trade goodwill into your own new company and expect the reduced rate on that gain. Incorporation can still make sense for other reasons, but the goodwill point is one to get advice on before you act.

Do EMI share options change the 5% and two-year rules?

They relax them significantly, which is why EMI options are so valued.

For shares from a qualifying EMI option, the personal company 5% test does not apply. You also need not have held the shares for the full two years.

There is a condition in exchange: the EMI option must have been granted at least two years before the disposal.

People who would fail the standard share tests can still qualify. So it is worth checking whether your shares came from an EMI scheme.

What counts as a trading company for BADR?

This is where share claims most often fall down. The company must be a trading company.

That means it trades and does not, to a substantial extent, do anything else, with investment property or large portfolios the usual problems.

HMRC’s working measure treats non-trading activity as a concern once it passes broadly 20%, judged across income, assets, and time. It is only a rule of thumb and recent cases have unsettled it, so a borderline company is worth checking carefully before a sale.

Can I still claim BADR on a furnished holiday let?

Generally no, not any more. The furnished holiday lettings regime was abolished from 6 April 2025.

An FHL no longer gets the trading-style treatment that opened the door to the relief.

One narrow point: simply continuing to let the property as an ordinary rental does not count as ceasing the business. So the three-year post-cessation route does not rescue a claim.

This area is genuinely fiddly, so confirm the position before acting.