Business Asset Disposal Relief: UK Founders Face 18% From 2026
Business Asset Disposal Relief reduces Capital Gains Tax on qualifying business disposals. The rate you pay depends on when the disposal happens: 10% on or before 5 April 2025, 14% between 6 April 2025 and 5 April 2026, and 18% from 6 April 2026, all within a £1 million lifetime limit per person.
TL;DR:
Shareholders generally need at least 5% of ordinary share capital and voting rights, plus a work or officer role, for two years; dilution can break eligibility.
Trustees can claim only when a qualifying beneficiary exists, and the joint claim draws on that beneficiary’s remaining lifetime allowance.
Claims use Self Assessment or Section A of HS275; a disposal in the 2025 to 2026 tax year must be claimed by January 31, 2028.
Investment assets and property let to unrelated tenants generally fall outside relief; former business assets qualify only if sold within three years after trading ends.
Net qualifying gains are reduced by qualifying losses first; apply the basic rate band to BADR gains before the Annual Exempt Amount offsets other gains.
Table of Contents
Eligibility and qualifying disposals: the two year rule, shares, EMI and trustees
The £1 million lifetime limit and how trustee claims interact with it
How BADR affects the tax calculation and the order of allowances
Joint ownership and disposals by multiple partners or shareholders
Legislative changes beyond the current Finance Act 2025 rate schedule
Keystone’s perspective: practical steps we take when advising clients on BADR
BADR rates and which disposals they cover
The rate schedule tracks three windows tied to recent Finance Act changes. Disposals completed on or before 5 April 2025 were taxed at 10%, disposals between 6 April 2025 and 5 April 2026 sit at 14%, and anything from 6 April 2026 onwards moves to 18%. These rates apply only to qualifying gains, and only up to whatever remains of your £1 million lifetime allowance.
Rates by disposal date, drawn from HMRC’s capital gains manual:
Disposal date | BADR rate |
On or before 5 April 2025 | 10% |
6 April 2025 to 5 April 2026 | 14% |
From 6 April 2026 | 18% |
Once your qualifying gains exceed the lifetime cap, the excess reverts to standard Capital Gains Tax rates, regardless of which window the disposal falls into.
Eligibility and qualifying disposals: the two year rule, shares, EMI and trustees
Qualifying for BADR means passing a set of tests that HMRC applies consistently across individuals, shareholders and trustees. The backbone is a two year qualifying period that must run up to the date of disposal or, where relevant, the date the business ceased trading.
A “material disposal” is the term HMRC uses to describe the transactions that can attract relief, and it covers more ground than a simple business sale:
Sale of the whole or part of a business you have run as a sole trader or in partnership.
Disposal of assets you used in a business that has since ceased, provided the disposal happens within three years of cessation.
Sale of qualifying shares, generally where you hold at least 5% of ordinary share capital and voting rights, and either work for the company or hold an officer role.
The personal company test is where most shareholder claims fall down: dilution below 5% through a new share issue can break eligibility unless you take steps, such as crystallising a gain before the dilution, to preserve your position.
EMI shares get separate treatment. Shares acquired on exercise of a qualifying Enterprise Management Incentive option can qualify for BADR where the two year holding test is met from the date of grant, and special identification rules help maximise the recognised holding period.
Trustees face their own version of the test. A trust disposal of business assets can qualify for BADR only where there is a qualifying beneficiary, and the claim must be made jointly between the trustees and that beneficiary. Associated disposals, where you sell a personal asset alongside a qualifying withdrawal from the business (such as the premises you own personally but the company has used), can also draw in BADR provided the withdrawal itself is a qualifying event.
The £1 million lifetime limit and how trustee claims interact with it
The £1 million figure is not an annual allowance you refresh each year. It is a cumulative lifetime limit that has applied since 11 March 2020, and every BADR claim you make chips away at what remains.
Once you have used the full £1 million across however many qualifying disposals it took to get there, any further qualifying gains are taxed at the standard Capital Gains Tax rate rather than the BADR rate. There is no reset, no renewal and no way to recover allowance already claimed.
Trustee disposals do not get a separate pot. When trustees dispose of settled business property, the relief available depends entirely on how much of the qualifying beneficiary’s own lifetime limit remains. If that beneficiary has already claimed BADR on personal disposals, the trustees’ claim draws on whatever is left.
How BADR affects the tax calculation and the order of allowances
Working out the tax due starts with aggregating every qualifying gain and loss in the tax year to arrive at a single net qualifying gain for BADR purposes. Losses on qualifying assets reduce the gain before any rate is applied.
HMRC’s own guidance on working out your tax sets out a sensible order: apply your basic rate band against the gains eligible for BADR first, then use the Annual Exempt Amount against your other, non-qualifying gains. Getting this order wrong can mean paying more tax than necessary, particularly where you have a mix of qualifying and non-qualifying disposals in the same year.
If your net qualifying gains for the year exceed whatever remains of your £1 million lifetime limit, the excess simply falls back to standard CGT rates. Many founders find this calculation straightforward to understand in principle but fiddly to execute correctly when several disposals and reliefs overlap, which is where getting the sequencing checked before filing pays off.
Claiming BADR and the deadlines you need to hit
You claim BADR either through your Self Assessment return or in writing, using Section A of the HS275 helpsheet if you are not submitting a return for another reason.
Identify the qualifying disposal and calculate the net qualifying gain for the tax year.
Make the claim on your Self Assessment return, or submit Section A of HS275 directly to HMRC if you do not otherwise need to file.
Keep the claim within the statutory deadline: the first anniversary of 31 January following the end of the tax year in which the disposal occurred. For a disposal in the 2025 to 2026 tax year, that deadline is 31 January 2028.
Amend the claim within the same time limit if your figures change.
There is no limit on how many times you can claim BADR across your lifetime, only on the total gain the relief can shelter.
Anti-forestalling rules and timing considerations
Finance Act 2025 introduced anti-forestalling measures aimed squarely at arrangements designed to lock in a lower rate before it expired. HMRC’s concern is disposals engineered purely to capture an earlier, cheaper rate rather than disposals that happen to fall in a particular window for genuine commercial reasons.
Timing and commercial substance sit at the centre of this. A disposal that coincides with a rate change is not automatically suspect, but one structured, artificially accelerated or unwound shortly after completion purely to beat a rate rise invites scrutiny. If your timing is at all borderline, document the commercial reasons behind the disposal date (a buyer’s readiness, a funding deadline, a retirement plan) and get a second opinion before filing.
Short worked examples applying the rules
Example 1. Say a sole trader sells their business in the 2025 to 2026 tax year with a qualifying gain within the available lifetime limit, and they have made no previous BADR claims. The gain is taxed at the 14% rate applying to that period.
Example 2. Say trustees dispose of settled business property producing a qualifying gain, and the qualifying beneficiary has already used part of their £1 million lifetime limit through a personal disposal. Only the unused portion of the beneficiary’s limit can benefit from BADR; any excess is taxed at standard CGT rates. This is an illustrative example, not a forecast of any individual’s position.
Assets that do not qualify for BADR
Not every business asset attracts relief, and misreading this point is one of the more expensive mistakes founders make. Investment assets held within a trading company, such as surplus cash parked in investments or a property let out on a purely commercial basis to an unconnected tenant, generally fall outside BADR because they are not used for the purposes of the trade.
Shares in a company that does not meet the trading company definition do not qualify either. HMRC looks at whether the company’s activities are “substantially” trading; a business with significant non-trading activity, such as holding investment property as its main function, will usually fail the test.
Personal assets you own outright but which were never used by the business, or were used by the business but disposed of outside the three year window following cessation, also fall outside the relief. The same applies to goodwill transferred to a close company in which you or your associates hold more than 5%, a specific anti-avoidance carve-out HMRC applies to prevent incorporations being used purely to access the relief.
Assets disposed of as part of a share-for-share exchange, rather than a genuine sale, typically do not crystallise a disposal for BADR purposes at all, since no gain arises until the replacement shares are eventually sold. Getting the classification wrong on any of these categories can mean a claim is rejected outright rather than simply reduced, so it is worth checking the trading status and usage history of every asset before assuming it qualifies.
Record-keeping requirements to support a BADR claim
HMRC can ask you to evidence a BADR claim well after you have filed it, so the paperwork needs to survive longer than most people expect.
For employment or officer status, retain contracts, board minutes or payroll records that show your role and dates of service across the two year qualifying period. Where the disposal follows cessation of trade, keep evidence of the cessation date itself, since the three year window for disposing of former business assets runs strictly from that point.
Completion statements, sale and purchase agreements, and valuations used to calculate the gain all need to be kept, along with a clear record of any prior BADR claims and the lifetime allowance used by each one. Without that running total, it becomes difficult to prove how much of the £1 million limit remains available for a later disposal, and HMRC will not simply take your word for it.
Trustees have an additional layer: documentation showing the qualifying beneficiary’s status and consent to the joint claim, since a BADR claim on trust property cannot proceed without it. Good practice is to retain these records in line with HMRC’s record-keeping guidance for Capital Gains Tax.
Joint ownership and disposals by multiple partners or shareholders
When a business is sold by more than one partner or shareholder, BADR is assessed separately for each person rather than as a single claim for the business as a whole. Each individual needs to meet the qualifying conditions (the 5% test, the employment test, the two year period) in their own right; one partner passing the test does not carry the others across the line.
This matters most in partnerships and small companies where ownership is uneven. A partner who falls below the shareholding threshold and has no officer role will not qualify for BADR on their share of the proceeds even if their co-partners, holding larger stakes, qualify comfortably on theirs. Each person’s gain, and each person’s claim, is calculated against their own lifetime limit.
Practically, this means a joint disposal needs individual computations prepared for every qualifying owner, with the sale proceeds and costs apportioned according to each person’s actual ownership share, not an assumed equal split unless that reflects reality. Where shareholdings have shifted shortly before the sale, perhaps through a late share issue, each owner’s position at the relevant test date needs checking independently, since dilution can knock one shareholder out of eligibility while leaving others unaffected.
How BADR interacts with other Capital Gains Tax reliefs
BADR sits alongside, rather than in competition with, several other Capital Gains Tax reliefs, and understanding the boundary between them avoids double-counting or missed opportunities. Entrepreneurs’ Relief was the previous name for the same relief now called Business Asset Disposal Relief, so references to either term describe the same mechanism rather than two separate reliefs.
Investors’ Relief is a distinct relief with its own £1 million lifetime limit, aimed at external investors in unlisted trading companies who do not work for the business and so cannot meet BADR’s employment test. The two limits are entirely separate: using up your BADR allowance does not touch your Investors’ Relief allowance, and vice versa, which matters for founders who also hold personal investments in other unlisted companies.
Where a disposal includes assets that qualify for BADR and others that do not, you calculate and claim relief only on the qualifying portion, with the remainder taxed at standard CGT rates and set against your Annual Exempt Amount in the usual way. Getting the sequencing right between BADR, the basic rate band and the Annual Exempt Amount, as covered earlier, has a real effect on the total tax bill when a sale involves a mix of qualifying and non-qualifying gains.
BADR’s role in succession planning and exit strategy
BADR often shapes the structure of an exit long before the sale itself happens, because the qualifying tests reward planning ahead rather than reacting at the point of sale. Founders who intend to sell or hand over a business benefit from checking, well in advance, that their shareholding, employment status and the company’s trading classification will all still meet the tests on the planned disposal date.
Succession to family members or management teams raises its own timing questions. A gradual handover of shares, for example, can inadvertently dilute a departing owner below the 5% threshold before the final disposal, which is why sequencing a sale or gift of shares against the qualifying tests matters as much as the commercial terms of the handover itself.
For businesses expecting a trade sale, the three year window for disposing of assets after cessation gives some flexibility to wind down and dispose of remaining business property without losing relief entirely, but it is a hard cut-off rather than a guideline. Building a BADR review into exit planning, rather than treating it as a filing exercise after the sale completes, tends to preserve more of the lifetime allowance and avoids discovering an eligibility gap after the deal is signed.
Legislative changes beyond the current Finance Act 2025 rate schedule
The rate increases to 14% and then 18%, together with the anti-forestalling provisions, are the most recent confirmed changes affecting BADR, both set out in Finance Act 2025. Beyond this schedule, HMRC’s guidance and the underlying capital gains manual continue to be updated periodically to reflect how the anti-forestalling rules are applied in practice, particularly around what counts as genuine commercial timing versus rate-driven restructuring.
The lifetime limit itself has moved substantially over the relief’s history, having been reduced from £10 million to £1 million in March 2020, which is a useful reminder that the cap is not fixed permanently and can change with future Budgets. Anyone planning a disposal several years out should treat today’s rates and limit as the current position rather than a guaranteed figure, and check HMRC’s published guidance again closer to the actual disposal date rather than relying on older articles or a single Budget announcement.
Keystone’s perspective: practical steps we take when advising clients on BADR
The rules read cleanly on paper and fall apart in practice at the edges: a diluted shareholding nobody tracked, an EMI exercise date nobody recorded, a trust claim nobody coordinated with the beneficiary’s own allowance. We verify ownership and employment tests against the actual dates involved, flag associated disposals that clients rarely think to mention, and check EMI documentation against the exercise and grant dates rather than assuming they qualify.
We also model the lifetime allowance across a client’s anticipated disposals, not just the one in front of us, because the order you claim in can change how much relief ends up where it is most valuable.
— Shoaib
How we can help you get a BADR claim right
We prepare tailored eligibility reviews that check the two year test, the 5% shareholding threshold and the trading status of the business before you commit to a disposal date, so there are no surprises when the claim goes in. [
](www.keystonefa.co.uk) Where multiple partners, shareholders or trustees are involved, we can discuss the computations for each person and joint claims where a trust disposal depends on a beneficiary’s remaining allowance.
We can explain how qualifying gains and losses are considered alongside the basic rate band and Annual Exempt Amount.
We can discuss the claim process, including Self Assessment returns and the HS275 submission.
We can advise on documenting the commercial reasons behind your disposal date, which matters given the current anti-forestalling rules.
If you are weighing up a business sale, a share disposal or a trust distribution and want the BADR position checked properly, our accounting and tax planning services are built for exactly this kind of founder and shareholder work.
This article is general information, not a substitute for advice from a qualified financial advisor. Consult a qualified financial professional about your own circumstances before acting on anything here.
FAQ
What are the Business Asset Disposal Relief rates for 2025 and 2026?
Disposals between 6 April 2025 and 5 April 2026 are taxed at 14%, while disposals from 6 April 2026 onwards move to 18%.
Is BADR still 10%?
No. The 10% rate only applied to disposals made on or before 5 April 2025; it rose to 14% for disposals up to 5 April 2026 and is set to rise again to 18% from 6 April 2026.
What are the qualifying conditions for a BADR claim?
You generally need to meet a two year ownership and employment period, hold at least 5% of ordinary share capital and voting rights where shares are involved, and show the disposal counts as a “material disposal” of a business, business assets or qualifying shares. Trustees must also show a qualifying beneficiary exists.
What is the lifetime limit for Business Asset Disposal Relief?
The lifetime limit is £1 million of qualifying gains per individual, and it is cumulative rather than annual. Once it is used up through one or more claims, further qualifying gains are taxed at standard Capital Gains Tax rates.
How do I claim BADR and what is the deadline?
You claim through your Self Assessment return or by completing Section A of the HS275 helpsheet if you are not filing a return. The deadline is the first anniversary of 31 January following the end of the relevant tax year, so a disposal in the 2025 to 2026 tax year must be claimed by 31 January 2028.
Authoritative HMRC pages and helpsheets to consult next
For the full detail behind any of the points above, HMRC’s own pages remain the primary reference. Start with the general eligibility guidance, move to the HS275 helpsheet for claim mechanics, and check the Capital Gains manual for the rate schedule and anti-forestalling detail. For anything that sits outside the standard scenarios covered here, including unusual trust structures or borderline trading status questions, it is worth checking directly with HMRC or speaking to a professional adviser before filing.
If you want ongoing updates on changes like these as part of broader year-end planning, our tax planning insights and our guide on whether you need to complete a Self Assessment return cover related ground.
Recommended