Business Asset Disposal Relief (BADR): What Employers and Employees Need to Know About Share Options

📘 Overview

This guide explains how Business Asset Disposal Relief (BADR) works for individuals who hold Enterprise Management Incentive (EMI) or Unapproved Share Options.

It covers the qualifying rules, company conditions, and the practical steps needed to make sure you don’t miss out on valuable tax relief when selling your shares.

💡 Overview: What BADR Does

BADR allows individuals to pay a reduced rate of Capital Gains Tax (CGT) on qualifying business disposals, including company shares.

If eligible, you can apply BADR to up to £1 million of lifetime gains.

The relief is designed to reward long-term business participation and risk-taking. It’s often most relevant to founders, employees, and directors who hold shares through approved share schemes such as EMI.

📊 CGT Rates for BADR

Note: The rate increases reflect recent Budget changes. Tax Insider+3BDO+3Payne Hicks Beach+3

✅ Company Conditions for BADR Eligibility

Whether your shares come from EMI or unapproved share options, your company must meet specific conditions before BADR can apply.

Trading Status

• The company must be a trading company or the holding company of a trading group.
• A trading company carries out substantial trading activities, it must not mainly engage in non-trading activities such as property investment or passive income holdings.

Active Trading Period

• The company must have been a qualifying trading company for at least 2 years before the share disposal.

UK Permanent Establishment (for EMI only)

• When EMI options are granted, the company must have a permanent establishment in the UK at that time.

Not in Liquidation

• BADR normally does not apply if the company has gone into liquidation, unless the share disposal happens within 3 years of the business ceasing to trade.

❗ If a company fails to meet these criteria, employees may lose BADR eligibility even if they personally meet all the conditions.

📘 BADR and EMI (Enterprise Management Incentive) Options

EMI options are one of the most favourable routes to qualify for BADR because the rules are more flexible and easier to satisfy.

To qualify for BADR on EMI shares, you must:

• Have held the EMI option for at least 2 years before selling the shares. (The clock starts from the grant date, not when the shares are exercised.)
• Be an employee or director of the company throughout that 2-year period.
• There is no minimum shareholding requirement for EMI participants.

Employer Responsibilities

Employers play a key role in ensuring EMI compliance and BADR eligibility:

• ✅ Grant EMI options in line with the scheme rules.
• ✅ Notify HM Revenue & Customs (HMRC) of EMI grants by 6 July following the end of the tax year.
• ✅ Maintain records proving the company’s trading status and employee eligibility.

Failure to comply with these steps can jeopardise the relief.

📘 BADR and Unapproved Share Options

Unapproved (or “non-EMI”) options are not tax-advantaged and are therefore more complex when it comes to BADR. Employees may still qualify, but only if they hold a meaningful ownership stake.

To qualify for BADR on shares from unapproved options, you must:

• Hold at least 5% of the company’s shares and voting rights.
• Be entitled to 5% of profits or sale proceeds.
• Hold the shares for at least 2 years before selling.
• Be an employee or director throughout that period.
• Ensure the company meets the same trading conditions as for EMI.

In practice, this means that BADR on unapproved options usually applies only to founders or senior team members with significant holdings.

📊 Comparison: EMI vs. Unapproved Options and BADR

💡 Practical Points and Tips

• Plan early: Check both company and personal conditions well before a potential share sale.
• Keep documentation: HMRC can request evidence of your option grant, employment status, and trading activity.
• Stay within timelines: Missing the EMI notification deadline or the 2-year qualification period can disqualify the relief.
• Consider timing: Selling before or after April 2026 could affect your tax rate.
• Seek advice: BADR interacts with employment and share-option rules, professional tax advice is highly recommended.