The relief enables you to pay CGT at the lower rate of 18% when you sell all or part of your business. This compares favourably with the current standard CGT rate of 24%.
The total gains of an individual attracting relief are subject to a lifetime limit of £1 million. The maximum CGT saving as a result of BADR is therefore the difference between paying tax on £1 million at 24% and paying tax at a rate of 18% - a potential saving of £60,000. For disposals from 6 April 2027 the lifetime limit reduces to £500,000.
Business asset disposal relief conditions
BADR is available where an individual or trustees sell a business (or part of a business), and this includes individuals disposing of shares in their personal trading company. Disposal of assets used in the business may also qualify for relief.
BADR is available to sole traders, partners and certain company shareholders. It may also be available in circumstances to trustees by reference to the beneficiaries of the trust. The relief is not available to capital disposals within a company, where alternative reliefs may apply instead.
For individuals selling all or part of their business, to qualify for the relief there is a requirement to be a sole trader or business partner for at least two years up to the date of the business sale. In addition, the business assets being sold usually need to be owned for the same period.
In the case of an individual selling shares in a company, the business must be a 'personal trading company' in order to qualify for relief. To meet this condition the shareholder must be either an employee or office holder of the company, have at least 5% of the ordinary share capital and be entitled to at least 5% of the votes. In addition, the shareholder must also be entitled to at least 5% of either the profits that are available for distribution and assets on winding up the company, or disposal proceeds if the company is sold. These conditions must have been met for at least two years leading up to the date of the disposal.
Common mistakes when claiming BADR
There are several potential pitfalls that can catch out the unwary and cause the relief to be lost. Some common examples we see in practice are as follow:
For the disposal of shares in a company, it is required that the main activities are trading, as opposed to non-trading activities (such as investment activity). Relief is not denied if the company is the holding company of a trading group. If the company has a substantial amount of non-trading activity, relief can be lost. There is no formula to work out what is 'substantial' for this purpose and this has been an area of some contention in several tax cases over the years.
The meaning of ‘ordinary share capital’ and the requirement for individuals to hold at least 5% of the shares, capital rights and voting rights are also frequently examined in the tax courts, particularly where the rights of shares have been altered.
Where part of a business is being sold there can be a fine dividing line between what actually constitutes the disposal of part of a business and what is merely a disposal of assets from within a continuing business. BADR is denied in the latter case.
With consideration of the complexity of the tax rules and potential pitfalls, it is recommended to take tax planning advice in advance of selling your business to ensure, where possible, that BADR is not lost.
Founders’ relief
Budget 2026 announced a new capital gains tax relief, Founders’ Relief which has some similarities to Business Asset Disposal Relief, and can reduce the rate of tax on a qualifying disposal of company shares to 10%. The law for this new relief has yet to be written but it is proposed that a number of conditions will need to be met in order to qualify for the new relief that aim it squarely at high-value growth and innovative businesses only. It is expected that only a small number of taxpayers will qualify for this new relief going forward.
We also have an article which provides a broad outline of capital gains tax that you might find useful.