When you sell a business you have built, the gain can be substantial, and at standard Capital Gains Tax rates a large slice would go to HMRC. Business Asset Disposal Relief, the successor to Entrepreneurs' Relief, exists to soften that on qualifying disposals by applying a reduced rate up to a lifetime limit of £1 million of gains. It is one of the most valuable reliefs available to owner-managers, but it comes with strict conditions, a rate that has been climbing across recent budgets, and a two-year qualifying window that has to be planned for well before a sale rather than discovered at completion.
What the relief does and what it now costs
Business Asset Disposal Relief reduces the Capital Gains Tax rate on qualifying gains, up to a cumulative lifetime limit of £1 million. The limit is a once-in-a-lifetime figure, not an annual one, so gains claimed on earlier disposals use it up and reduce what is left for future sales. The headline change in recent years has been the rate itself, which has been raised in steps.
| Disposal date | BADR rate on qualifying gains |
|---|---|
| Before 6 April 2025 | 10% |
| 6 April 2025 to 5 April 2026 | 14% |
| From 6 April 2026 | 18% |
From 6 April 2026 the relief applies an 18% rate, up from 14% in the previous year and 10% before that. Even at 18% the relief is worth having, because the standard higher rate on non-property gains is 24%, but the gap has narrowed considerably from the days of a flat 10%. The narrowing rate is exactly why the timing and structure of a sale now matter more than they did, and why the arithmetic of a disposal should be modelled before it is committed to.
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Who and what qualifies
The relief covers three broad categories of disposal, each with its own conditions that must generally be met throughout the two years ending on the date of sale.
- Selling all or part of a sole trader business or a partnership share, where you have carried on the business for at least two years.
- Selling shares in a personal trading company where, for two years, you have been an employee or office-holder, held at least 5% of the ordinary shares and voting rights, and been entitled to at least 5% of the profits available for distribution and assets on a winding up.
- Disposing of assets used by a business you were a partner in or a shareholder of, where the disposal is associated with the withdrawal from the business.
The two-year qualifying period is the condition most often missed. Someone who dilutes below 5%, changes role, or sells within two years of incorporating a former sole trade can lose the relief entirely on a technicality. The company must also be trading rather than mainly holding investments, so a business sitting on large cash reserves or an investment property can fall foul of the trading test. Directors weighing up an exit should also keep an eye on how a company sale interacts with any outstanding balances on the director's loan account, which needs to be resolved cleanly before a disposal rather than left to complicate the sale.
How to claim and report the gain
The relief is not automatic. You claim it on your Self Assessment return for the tax year of the disposal, or on a separate claim form, by the first anniversary of the 31 January following that year. On the return you report the disposal on the capital gains pages, calculate the gain in the normal way after the annual exempt amount and any allowable costs, and identify the qualifying gain on which the reduced rate is claimed. HMRC's helpsheet on Business Asset Disposal Relief sets out the working and the boxes to use, and where a disposal is large it is worth having the qualifying conditions checked before filing rather than assuming they were met.
The mechanics matter because the qualifying gain and the non-qualifying gain can be taxed at different rates on the same return. A gain above the £1 million lifetime limit, or on an asset that does not qualify, falls back to the standard 18% or 24% rates, so a single sale can carry a blend. The wider CGT rules across property, shares and businesses show how these rates fit together, and structuring a sale to make the most of the relief is a core part of tax planning rather than something to work out at the point of completion.
Planning around the relief
Because the lifetime limit is cumulative and the rate has risen, the planning questions have shifted. Spreading ownership across a spouse or civil partner who also meets the conditions can bring a second £1 million lifetime limit into play on a joint sale, provided both genuinely qualify. Ensuring the two-year clock is satisfied before a sale completes can mean deferring an exit by a few months to protect the relief on the whole gain. And the Chartered Institute of Taxation, in its rundown of the tax changes taking effect this April, flags that the timing of a disposal around the 6 April rate change can materially alter the tax, which makes the completion date itself a planning point rather than an afterthought.
Common questions about Business Asset Disposal Relief
What is the Business Asset Disposal Relief rate now?
From 6 April 2026 qualifying gains are taxed at 18%, up from 14% in 2025/26 and 10% before April 2025. It applies up to a £1 million lifetime limit of gains; anything above the limit is taxed at the standard rates.
Is the £1 million limit per sale or for life?
It is a lifetime limit. Qualifying gains claimed on earlier disposals count towards it, so once you have used £1 million of relief across your lifetime, no further gains qualify for the reduced rate.
How long do I need to have owned the business?
Generally the qualifying conditions must be met throughout the two years ending on the date of disposal. For a company that means two years as an employee or officer holding at least 5% of the shares and voting rights; for a sole trade or partnership it means two years of carrying on the business.
Do I have to claim the relief or is it automatic?
You have to claim it, on your Self Assessment return or a separate claim, by the first anniversary of the 31 January following the tax year of the disposal. If you do not claim within the time limit, the standard rates apply.
Business Asset Disposal Relief remains one of the few meaningful reliefs left for people selling something they built, but the rising rate and the strict two-year conditions have made it a relief you plan into rather than claim at the end. The gains at stake on a business sale are usually large enough that getting the ownership structure, the timing and the qualifying tests right well ahead of completion is what preserves the reduced rate on the whole disposal.
Proactive tax planning with a Harrow specialist reduces your bill before the year end — not after.
Tax Planning Advice in HarrowThis article reflects current HMRC guidance as of April 2026. Key references: HMRC Self Assessment overview, HMRC SA returns collection. Tax rules change annually. Always verify deadlines and thresholds at gov.uk or with a qualified accountant.
Our editorial team includes ACCA-qualified accountants and tax writers with experience across self-employment, rental income, and HMRC compliance. All articles are reviewed annually against current HMRC guidance and updated where rules change.