Business Asset Disposal Relief (BADR) is a UK Capital Gains Tax relief that reduces the rate of CGT on qualifying disposals of business assets. For disposals in the 2026/27 tax year, the BADR rate is 18%, applied to a lifetime limit of £1 million of qualifying gains per individual. In practice, that means paying 18% rather than the standard 24% higher rate on up to £1 million of qualifying gains across your lifetime.

This is the third rate change in two years: BADR ran at 10% until April 2025, rose to 14% for 2025/26, and now sits at 18% from 6 April 2026 onwards - so the gap between BADR and the standard higher rate has narrowed materially.

For business owners approaching a sale, management buyout, family succession, or solvent liquidation, BADR remains the headline CGT relief. This guide covers what BADR is, the rate timeline, who qualifies, three worked examples at 2026/27 rates, when alternative routes such as an Employee Ownership Trust (EOT) are worth considering, the pre-sale planning that affects the outcome, and what to do with the proceeds once the sale completes.

What is Business Asset Disposal Relief (and what it isn't)?

BADR is for individuals and certain trustees disposing of a business they've been actively involved in. It is not available to companies, not available on investment assets, and not available to passive shareholders.

The relief was introduced as Entrepreneurs' Relief in April 2008 and renamed Business Asset Disposal Relief in April 2020. Searches for both terms still circulate; they refer to the same relief.

For 2026/27 it reduces the CGT rate on qualifying gains to 18%, against standard CGT rates of 18% within the basic rate band and 24% above it. It is capped at a £1 million lifetime limit per individual - substantially below the £10 million lifetime limit that applied until March 2020.

A few things BADR is not:

• It is not a discount on the sale price.

• It is not automatic, you must claim it through Self Assessment.

• It does not apply to disposals of personally held investments, buy-to-let property, or shares in companies where you are a passive minority holder.

The detail is set out in the HMRC Capital Gains Manual at CG63951P.

BADR rates: the 10% → 14% → 18% timeline

The BADR rate has moved three times in roughly 18 months. The full timeline for disposals:

Period	BADR rate	Standard CGT (basic / higher)	BADR saving at the higher rate
Before 30 October 2024	10%	10% / 20%	10 percentage points
30 October 2024 – 5 April 2025	10%	18% / 24%	14 percentage points (widened temporarily)
6 April 2025 – 5 April 2026	14%	18% / 24%	10 percentage points
6 April 2026 onwards (2026/27)	18%	18% / 24%	6 percentage points

For a disposal that fully uses the £1 million lifetime limit, the maximum BADR saving at 2026/27 rates is £60,000 - the 6-percentage-point gap between BADR's 18% and the standard 24% higher-rate CGT. Under the old 10% BADR rate, the same disposal would have saved £140,000.

The Autumn Budget 2024 set out the schedule of increases, and the rate changes were enacted through Finance Act 2025. Whether further changes apply from 2027/28 onwards will depend on Autumn Budget 2026.

Who qualifies and how to claim

The qualifying conditions differ by disposal type, and all must have been met for at least two years ending with the date of disposal (the qualifying period was one year before April 2019).

Shareholders and directors of a limited company. You must hold at least 5% of the ordinary share capital and at least 5% of the voting rights, and have at least 5% of the economic interest, measured by the right to dividends and the right to assets on a winding-up. You must be an officer or employee of the company, and the company must be a trading company (or the holding company of a trading group) throughout the two-year qualifying period.

Sole traders and partners. You must be disposing of all or part of a trading business you have owned for at least two years up to the date of disposal. Alternatively, the cessation rule allows BADR on a disposal of business assets within three years of ceasing to trade, provided the business was owned for at least two years before cessation.

Trustees. Trustees can claim BADR where a beneficiary has a qualifying interest in possession in the trust and the beneficiary personally meets the qualifying conditions above.

How to claim. BADR is claimed through the capital gains supplementary pages of your Self Assessment return. For 2026/27 disposals, the SA filing deadline is 31 January 2028 and the BADR claim deadline is 31 January 2029 - one year after the return is due. HMRC does not provide advance clearance on BADR eligibility; you self-assess. The detail is in the HMRC Capital Gains Manual at CG64050 onwards.

BADR worked examples for 2026/27

Three illustrative examples at the 2026/27 rates.

Example 1 - sole owner selling shares in a trading company. Founder owns 100% of a UK trading company. Sale price £2 million; original cost £1; gain £1,999,999. After the £3,000 annual CGT exemption, the taxable gain is £1,996,999.

• First £1m at BADR 18%: £180,000

• Remaining £996,999 at standard higher-rate 24%: £239,280

• Total CGT: £419,280 - versus £479,280 with no BADR. Saving: £60,000

For comparison, the same disposal in the 30 October 2024 – 5 April 2025 window (BADR still 10%, but standard CGT already risen to 18%/24%) would have produced total CGT of £339,280, a saving of £140,000.

Example 2 - spouses with equal shareholding. Two spouses each own 50% of a trading company's shares. Sale price £2 million; total taxable gain £1,994,000 after two annual exemptions.

• Each spouse's gain: £1,000,000, reduced to £997,000 after their individual £3,000 annual exempt amount, and fully within their individual £1m BADR lifetime limit

• Each pays 18% BADR on the full gain: £179,460 × 2 spouses = total CGT £358,920

• Versus Example 1's single-owner outcome of £419,280: a saving of £60,360 by using both spouses' lifetime limits

Example 3 - sole trader retiring. Sole trader sells the trading business for £500,000; original cost basis nominal. Gain after the annual exemption: £497,000.

• Full gain at BADR 18%: £89,460

• Versus standard higher-rate 24%: £119,280

• Saving: £29,820

These examples assume all qualifying conditions are met, the sellers have no prior BADR claims against their £1m lifetime limit, and standard CGT rates apply to any non-BADR portion at the higher-rate band.

When BADR is not the right route: EOT and other options

BADR is the default relief for most third-party trade sales, but several alternatives are worth modelling before committing to a transaction structure.

Employee Ownership Trust (EOT). Selling to an EOT used to be completely CGT-free. Since 26 November 2025, half the gain is taxable and half is deferred, passing to the trustees to settle if they ever sell the shares. That works out at around 12% overall, against 18% under BADR, but you cannot claim both. The rules also tightened on 30 October 2024, mainly around who can act as a trustee. Sellers are usually paid in instalments out of future profits, not because the structure requires it but because few companies can fund the full price at completion. An EOT suits an owner who can wait and a business with dependable cash flow.

Share-for-share exchange. If you take shares in the buyer instead of cash, this is not treated as a disposal at all: the new shares inherit your original cost and acquisition date, so nothing is taxed yet. The catch is that BADR is tested afresh when you sell the new shares, against your position in the buyer at that point. End up with under 5% of a larger company, or no longer an officer or employee, and the relief is gone. Sellers who want to keep it can make a section 169Q election to disapply that treatment, crystallising the gain immediately and claiming BADR then. That is a decision to take before completion, not after.

Deferred consideration and earn-outs. Fixed deferred sums are taxed up front at the date of sale, even though the money arrives later. Where the amount depends on future performance and cannot be calculated at completion, the Marren v Ingles principle applies: your right to those future payments is itself an asset, valued at the date of sale and taxed as part of the original proceeds. Each payment you later receive is a separate disposal of that right, and because it is a right rather than shares, BADR does not apply to it. Worth modelling before you agree the structure, as it can materially change the net figure.

Family succession and MVL. Giving shares to family counts as a sale at market value, though holdover relief can pass the gain to the recipient instead if both parties claim it. Where the company is wound up rather than sold, BADR can apply to capital distributions from a Members' Voluntary Liquidation. Two things catch people out: if the company has already stopped trading, the distribution must be made within three years of cessation, and the anti-phoenixing rules can recharacterise the whole distribution as a dividend, taxed as income, if you start a similar business within two years.

Each route has different CGT, IHT, and cash-flow implications. The right answer depends on the seller's objectives and the buyer profile.

Pre-sale planning to manage the tax position

The CGT outcome is set by the sale date, but several pre-sale moves can change the broader tax position.

Spousal share transfers before sale. Transfers between spouses are CGT-free under the inter-spousal exemption, however, individuals considering share transfers should seek advice regarding the tax, legal and commercial implications, as suitability will depend on individual circumstances.

The two-year qualifying period. If you are considering bringing in a spouse, family member, or senior employee as a shareholder pre-sale, the new holder needs the full two-year qualifying period to claim BADR themselves. This is a common pre-sale planning miss we see.

The pension contribution lever. In some circumstances, pension contributions made in the same tax year as the disposal can be used to affect your overall tax position. Whether this is appropriate will depend on your personal circumstances and financial objectives.

EMI share options and tax-year timing. Disposals of shares acquired via Enterprise Management Incentive options have a relaxed BADR shareholding test,  the 5% requirement does not apply. And a disposal in the closing days of one tax year versus the opening days of the next can matter if future Budgets adjust BADR further; as of mid-2026, the 18% rate is set for 2026/27 onwards.

After the sale: what to do with the proceeds

The CGT bill is one consideration; the larger conversation is what to do with the net proceeds.

Individual circumstances will vary, but it isn’t always right to do something clever with the money immediately. For some, it’s worth resisting. Trusts and similar structures are designed to be hard to unwind - which can become a problem if you later want to back another business or help a child buy a house, for example.

Some concerns we often see post-sale, in roughly the order they come up:

• Where to hold the cash safely before it's deployed. The FSCS protection limit is £85,000 per institution, so £2m of proceeds sitting in one bank account carries material counterparty risk on the unprotected balance.

• Phased investment to manage the market-timing risk of deploying a large lump sum.

• Rebuilding the pension if it was sized for the business rather than the post-sale lifestyle.

• The inheritance tax position now that the business has been converted to cash.

That IHT position shifts materially. Pre-sale, qualifying trading business assets attract 100% Business Property Relief after two years of ownership - capped at £2.5m of combined qualifying business and agricultural assets per individual from 6 April 2026, with 50% relief on the slice above the cap. (The £2.5m cap was confirmed by Government amendment in December 2025, revising the original £1m cap announced at Autumn Budget 2024.) Post-sale, the cash and investments do not qualify for BPR, so the proceeds sit fully within the estate for IHT. This often becomes the dominant planning question in the first two years after a sale.

For the broader post-sale decision framework, see our companion piece on eight essential questions to ask after a large share payout.

How NOVA can help

A BADR conversation we often have is with founders two to five years from an anticipated exit - modelling the impact of the rate changes, the pre-sale pension contribution lever, and the post-sale wealth structure.

If you'd like to speak to a NOVA adviser about navigating BADR, we offer a free 20-minute introductory call. There's no obligation and no charge.

How this article was prepared

This article was written by Joe Checkley, Partner & Chartered Financial Planner. Figures reflect the 2026/27 UK tax year.

Capital at risk. Prevailing tax rates and reliefs are dependent on your individual circumstances and are subject to change. We do not provide tax advice. This article does not constitute personal advice. If you are in doubt as to the suitability of an investment please contact a financial adviser. All figures quoted are for illustration purposes only. Past performance is not a guide to future performance. If you are unsure of your options you should seek professional financial advice or visit Pensionwise.gov.uk.

Issued on behalf of Nova. Nova is a trading name of Nova Wealth Ltd, which is authorised and regulated by the Financial Conduct Authority (FRN: 778951) and is a limited company registered in England & Wales (10739796).

Sources used:

• HMRC Capital Gains Manual CG63951P - Business Asset Disposal Relief

• HMRC Capital Gains Manual CG64050+ - BADR conditions

• Finance Act 2025 - BADR rate change schedule

• Taxation of Chargeable Gains Act 1992 s.135 - share-for-share exchange

• Taxation of Chargeable Gains Act 1992 s.165 - holdover relief on gifts

• Finance Act 2014 s.290 - Employee Ownership Trust CGT exemption

• GOV.UK Autumn Budget 2024 - BADR rate change announcement

About the author

Joe Checkley, Chartered Financial Planner, is a Partner at NOVA Wealth. He works primarily with business owners and senior professionals on retirement and pension planning, investment strategy, and personal tax planning - helping clients understand what their money will actually support, and when. Connect with Joe on LinkedIn.