Business Asset Disposal Relief (BADR)
📘 Overview
Business Asset Disposal Relief (BADR), formerly Entrepreneurs’ Relief, helps reduce the amount of Capital Gains Tax (CGT) you pay when disposing of qualifying business assets or shares.
- From 6 April 2025 to 5 April 2026, qualifying gains are taxed at 14%.
- From 6 April 2026 onwards, the rate increases to 18%.
- Before 6 April 2025, gains were taxed at 10% if all conditions were met.
✅ Conditions for BADR
You must meet specific conditions, typically throughout a 2-year qualifying period, ending on the disposal date (or, in some cases, the business cessation date).
Here are the main scenarios:
| Disposal case | Key conditions |
|---|---|
| Sale of business (or part) | • You are a sole trader or partner performing the trade. • The business must have been owned for ≥ 2 years. • The disposal must be of the whole, or a clearly defined part, of the business. • The business must be a “trading business” (not purely investment). |
| Disposals after business cessation | • Assets must have been used in the business at cessation. • Disposal must happen within 3 years of cessation. • You still must satisfy the 2-year holding requirement up to the end of the business. |
| Sale of shares / securities in your personal company | • You must hold shares in a “personal company” for ≥ 2 years. • You must have been an employee or office holder during that period (or equivalent role). • You must hold at least 5% of share capital and voting rights, and be entitled to ≥ 5% of profits or distribution on winding up / disposal. |
| Associated disposals | Assets owned personally but used in the business (e.g. machinery you lease to your company) may qualify if they are disposed of in connection with a qualifying business disposal. |
Other limits & caveats:
- BADR does not apply to companies - only individuals or certain trustees.
- Anti-forestalling rules apply for disposals around rate change dates to prevent schemes locking in lower rates artificially.
- There may be goodwill exclusions or restrictions for close companies under certain circumstances.
💰 Lifetime Limit & Tax Computation
- There is a £1 million lifetime limit on gains that can benefit from BADR for disposals from 11 March 2020 onwards.
- If your qualifying gains for a disposal, plus previous gains claimed under BADR, exceed this limit, the excess is taxed at the relevant standard CGT rate, not the relief rate.
- To compute your tax:
- Add all qualifying gains (less allowable losses) eligible for BADR
- Subtract the CGT annual exemption (if applicable)
- Apply the reduced BADR rate (14% or 18% as applicable) to the qualifying portion
- Non-qualifying gains are taxed at the normal CGT rates (which vary by type and income band).
🖊️ Claiming the Relief
📌 You must claim BADR - it’s not automatic.
How to make a claim:
- Use your Self Assessment tax return, filling in the relevant section (e.g. HS275 helpsheet).
- If you do not need to file a tax return for that year, send a written claim to HMRC (or use Section A of the Claim for Business Asset Disposal Relief form).
Deadline:
- The claim must be made by 31 January following the first anniversary of 31 January after the tax year in which the disposal occurred.
- Example: For a disposal in 2024/25, the claim must be made by 31 January 2027.
Amendments / revocations:
- You can amend or revoke a claim within the time limit for making claims.
⚠️ Plan Ahead - Don’t Close the Company Without Considering BADR
You shouldn’t close or liquidate a company without first considering BADR.
The relief is only available if specific conditions are met - typically over a 2-year qualifying period before the disposal or cessation of trade. If the company is wound up before these conditions are satisfied, or if profits are distributed in a non-qualifying way, the opportunity to benefit from BADR may be lost entirely.
Early planning allows you to:
- Confirm that the company qualifies as a trading company (i.e. not mainly investment-based).
- Ensure that all shareholding and employment conditions are met and maintained.
- Time the liquidation or sale within the required qualifying and post-cessation periods.
- Avoid triggering anti-avoidance rules (such as the “phoenix” company provisions) that could deny relief.
💡 Example - The Cost of Late Planning
Consider a shareholder-director who has run a trading company for several years and now wishes to close it. The company has £400,000 of retained profits available to distribute.
✅ Scenario 1 - BADR available
The company is liquidated through a Members’ Voluntary Liquidation (MVL), and all BADR conditions are met.
The profits are treated as capital gains, taxed at the BADR rate of 14%:
💰 Tax due: £56,000
❌ Scenario 2 - BADR not available
The company is closed without meeting the qualifying conditions, so the gain could be taxed at the standard higher CGT rate of 24%:
💰 Tax due: £96,000
📊 Result
Proper BADR planning saves £40,000 in tax (£96,000 − £56,000) on the same transaction.
💬 Takeaway:
BADR can reduce the tax payable on a business exit by tens of thousands of pounds, but it’s only available if conditions are met before the disposal or closure.
It’s crucial to review your eligibility, company structure, and timing well in advance (ideally 12–24 months before exit) to secure the relief.