Business Asset Disposal Relief 2026/27: The 18% Rate and Who Qualifies

Business Asset Disposal Relief (BADR) charges Capital Gains Tax at 18% on up to £1m of qualifying gains in your lifetime when you sell or wind up a trading business you have owned for at least two years. For disposals on or after 6 April 2026 that 18% rate replaces the 14% that applied in 2025/26 and the 10% that applied for years before that, so the relief is now worth 6 percentage points against the 24% higher CGT rate rather than 14 points.

The relief is what most people still call entrepreneurs' relief — it was renamed in 2020 but the qualifying tests are broadly the same. The headline change for 2026/27 is that BADR has become a much thinner benefit, and for some smaller sales it is now worth nothing at all.

Key points

• BADR is charged at 18% on qualifying gains from 6 April 2026, against main CGT rates of 18% (basic band) and 24% (above it).
• There is a £1m lifetime limit per person, not per business or per sale.
• You normally need two years of ownership, plus 5% of shares and votes and an officer or employee role for a company disposal.
• Because the BADR rate now equals the basic-rate CGT rate, the relief saves nothing on gains that would have fallen inside your unused basic rate band anyway.
• The disposal date for CGT is the date of the contract, not completion — which is what makes 5 April a hard cliff edge.

Who qualifies for Business Asset Disposal Relief

BADR applies to three broad kinds of disposal. All of them carry a minimum qualifying period of two years ending on the date of disposal (or the date the business ceased).

Selling shares in your own company

For a share sale you must, throughout the two years to the date of disposal, have been:

• an officer or employee of the company (or of a company in the same trading group) — a directorship with no salary is enough, and hours are not prescribed;
• a holder of at least 5% of the ordinary share capital and at least 5% of the voting rights; and
• entitled to at least 5% of the distributable profits and 5% of the assets available to equity holders on a winding up, or entitled to 5% of the proceeds on a sale of the whole ordinary share capital.

The company must also be a trading company or the holding company of a trading group. Substantial non-trading activity — commonly taken as more than 20% of assets, income or management time in investments rather than trade — can taint the whole claim. A company sitting on a large surplus cash pile or a let investment property is the classic risk.

Shares acquired under an Enterprise Management Incentive option are treated more generously: the 5% test does not apply, and the two years generally runs from the date the option was granted rather than exercised.

Sole traders and partners

If you trade as a sole trader or in a partnership, BADR can apply when you dispose of the whole or part of the business, including your share of partnership assets, provided you carried on the business for at least two years before the sale. Selling individual bits of kit while carrying on trading is not a disposal of the business and does not qualify.

There is also relief for assets sold after the business ceases, provided the business was owned for two years to the date of cessation and the assets are sold within three years of it.

What does not qualify

• Buy-to-let and investment property — a property letting business is not a trade, so residential landlords are outside BADR (and pay 18%/24% on residential gains).
• Shares below 5%, unless they are EMI shares.
• Goodwill sold to your own close company on incorporation, where you are a related party.
• Assets held personally and merely let to the company, other than under the separate and more restrictive associated disposal rules.
• Loan notes or earn-out rights that are not themselves qualifying shares at the point they are realised.

A separate relief, Investors' Relief, covers outside investors in unlisted trading companies who do not work in the business. Its lifetime limit was cut to £1m and its rate has been aligned with BADR.

The rise to 18%: what the change actually costs

Entrepreneurs' relief taxed £1m of gains at 10% for well over a decade. The rate was then increased in two steps.

So a founder using the full lifetime limit in 2026/27 pays £80,000 more than they would have on the same gain before April 2025, and £40,000 more than in 2025/26.

The more subtle point is the relationship with the main rates. Capital Gains Tax in 2026/27 is 18% on gains falling within your unused basic rate band and 24% above it, after the £3,000 annual exempt amount. BADR at 18% therefore only ever saves 6 percentage points, and it saves nothing where the gain would have been taxed at 18% anyway.

One mechanical detail matters here: gains on which you claim BADR are taxed at 18% but they still use up your basic rate band before other gains are considered. In practice, any gain of £1m has long since exhausted the £37,700 band, so everything above the BADR-covered slice is taxed at 24%.

Worked example: a £1.2m share sale

A director sells her trading company shares in June 2026, realising a gain of £1,200,000. She has used none of her lifetime limit and has a salary of £60,000.

1. Set the £3,000 annual exempt amount against the gain taxed at the highest rate: the non-BADR slice.
2. BADR slice: £1,000,000 × 18% = £180,000.
3. Remaining gain: £1,200,000 − £1,000,000 − £3,000 = £197,000 × 24% = £47,280.
4. Total CGT: £227,280.

With no BADR claim at all, the whole £1,197,000 taxable gain would be charged at 24% = £287,280. The claim is worth £60,000 — exactly 6% of £1m. Under the old 10% rate the same claim would have been worth £140,000.

Worked example: when BADR is worth nothing

A sole trader sells his business in 2026/27 for a gain of £20,000. His only other income is £30,000 of salary, so £17,430 of the basic rate band is used by income and £20,270 remains available for gains.

Taxable gain: £20,000 − £3,000 = £17,000. That sits entirely inside the unused band, so it is taxed at 18% with or without a BADR claim. Tax due: £3,060 either way. The claim still uses up £20,000 of the £1m lifetime limit if made, which is why the limit is worth protecting for larger disposals later.

Capital Gains Tax is not devolved, so Scottish taxpayers pay the same 18%/24% CGT rates and the same 18% BADR rate. Scottish income tax bands do not change the CGT calculation — the basic rate band for gains is the UK £37,700 figure, reduced by your taxable income.

The £1m lifetime limit

The £1m cap is per person, for life, and it counts every qualifying gain you have ever claimed relief on — including gains claimed under entrepreneurs' relief before the 2020 rename, and gains relieved at 10% or 14% in earlier years. Sell three businesses over twenty years and they share one £1m allowance.

Two consequences follow:

• Spouses and civil partners each have their own £1m limit. Where both genuinely meet the shareholding, officer or employee and two-year tests in their own right, two limits are available. Transfers of shares between spouses are on a no gain, no loss basis, but the recipient must satisfy the qualifying conditions themselves for the full two years — a transfer shortly before a sale will not usually work.
• Claims are optional per disposal. If a gain would be taxed at 18% anyway, claiming BADR spends limit for no benefit.

Timing a sale

Three dates drive almost every BADR timing question.

The contract date

For CGT, the disposal happens on the date the unconditional contract is made, not on completion and not when the money lands. A deal signed on 2 April but completing in June falls in the earlier tax year. Where the contract is conditional, the disposal date is normally the date the condition is satisfied.

The two-year clock

Every qualifying condition must be met for the whole two years to disposal. Stepping down as a director, dropping below 5% after a funding round that dilutes you, or the company becoming substantially non-trading can all break the chain — and the two years then has to be rebuilt.

The 5 April boundary and future Budgets

Because the rate stepped up on 6 April in both 2025 and 2026, the tax year in which a contract is signed has mattered a great deal. Anti-forestalling rules were introduced alongside the 2024 announcement to counter arrangements designed to lock in the old rate, so historic contracts and unexercised options are not always treated as you might expect.

If you are weighing a sale against the possibility of further CGT changes, our guide on whether to sell before the Autumn Budget 2026 sets out how to think about the trade-off between a rushed price and a known rate.

Shares vs assets: two ways to sell

How a deal is structured changes who pays what, and BADR only sits on one side of it.

A share sale

You sell the shares; the buyer takes the company with its history, contracts and liabilities. The gain is yours personally, and BADR can apply if you meet the tests. This is the structure that produces one layer of tax at 18% up to £1m and 24% above.

A trade and asset sale

The company sells its trade, goodwill and assets. The company pays Corporation Tax on its gains — 19% on profits up to £50,000, 25% above £250,000, with marginal relief in between — and you then have to extract the cash. Dividends from that cash would be taxed at up to 39.35% for an additional-rate taxpayer after the £500 dividend allowance.

The usual alternative is a formal liquidation, where distributions to shareholders in a members' voluntary liquidation are treated as capital and can qualify for BADR. That route is policed by anti-avoidance rules aimed at winding a company up and starting a similar trade again within two years, which can recharacterise the distribution as a dividend.

Buyers often prefer an asset purchase (cleaner liabilities, a stepped-up base cost); sellers usually prefer a share sale. The gap between the two is real money, and it is normally priced into the negotiation rather than fixed afterwards.

How to claim and report

BADR is not automatic — you must claim it. For most people that means completing the capital gains pages of a Self Assessment return for the tax year of the disposal and ticking the relief. The claim deadline is the first anniversary of the 31 January filing date for that year, so for a 2026/27 disposal the deadline is 31 January 2029. The tax itself is due by 31 January 2028 for a 2026/27 disposal. The 60-day reporting service applies to UK residential property, not business share sales.

Keep the evidence that supports the two-year period: board minutes and payslips for the officer or employee test, the share register and articles for the 5% tests, and accounts showing the trading position. HMRC's guidance on how to claim is on GOV.UK.

What to do next

Run the numbers before you agree a structure or a completion date. Put your expected gain, your other income and the £1m limit into the Capital Gains Tax calculator to see the 18% and 24% slices side by side, then compare that figure with the same sale taxed without relief. If a Budget sits between you and completion, read the guide on selling before the Autumn Budget 2026 before fixing a date.