Business Asset Disposal Relief (Entrepreneurs' Relief)

What Is Business Asset Disposal Relief?

Business Asset Disposal Relief (BADR) — formerly known as Entrepreneurs’ Relief — applies an 18% Capital Gains Tax rate to qualifying disposals made from 6 April 2026. The rate was 14% for disposals in 2025/26 and 10% for disposals on or before 5 April 2025.

The relief applies to qualifying gains up to a lifetime limit of £1 million. The saving is the difference between the BADR rate and the ordinary CGT rate that would otherwise apply, so it is largest for higher and additional rate taxpayers.

Qualifying Conditions

BADR is available to individuals (not companies or trusts) who dispose of:

1. All or Part of a Business

You qualify if you:

• Dispose of the whole or part of a business you have carried on as a sole trader or through a partnership
• Have owned and operated the business for at least 2 years ending on the date of disposal
• Are disposing of business assets used in the trade (not investment assets)

2. Shares in a Personal Company

You qualify if:

• The company is a trading company (or holding company of a trading group)
• You hold at least 5% of the ordinary share capital
• The shares carry at least 5% of the voting rights
• You are entitled to at least 5% of distributable profits and 5% of assets on winding up
• You are an officer or employee of the company (or a group company)
• All conditions have been met for at least 2 years ending on the date of disposal

3. Assets Used in Your Personal Company or Partnership

You can claim on the disposal of an asset (such as a building) that you own personally but which has been used by your trading company or partnership for at least 2 years, provided:

• You dispose of the asset within 3 years of the business or your involvement ceasing
• You also dispose of at least 5% of your partnership interest or shares at the same time

The 2-Year Qualifying Period

The 2-year qualifying period is a continuous period ending on:

• The date of disposal (for sales)
• The date the business ceased (if disposing of assets after cessation, the disposal must be within 3 years of cessation)

All qualifying conditions must be met throughout this entire 2-year period. A gap or break in meeting any condition can disqualify the claim.

Lifetime Limit

The lifetime limit is £1 million of qualifying gains. Key points:

If you have previously claimed BADR (or the old Entrepreneurs’ Relief), those gains count towards your lifetime limit.

The limit was £10 million until 10 March 2020 and has been £1 million for disposals since 11 March 2020. Gains relieved under the higher limit still count towards it.

How to Calculate the Relief

1. Calculate the chargeable gain on the disposal
2. Deduct any available losses and the Annual Exempt Amount for the tax year
3. Apply the 18% BADR rate to qualifying gains up to the remaining lifetime limit
4. Tax any remaining gain at the ordinary CGT rate that applies to you

Example

The Annual Exempt Amount for the year reduces the taxable gain slightly. Without BADR, the gain would be taxed at the ordinary CGT rates instead, so the saving is the difference between those rates and 18% on the qualifying gain.

How to Claim

BADR must be claimed — it is not applied automatically. The claim is made on the self-assessment tax return (pages CG1 and CG2) for the tax year in which the disposal takes place.

The deadline for claiming is the first anniversary of 31 January following the tax year of disposal.

Trading Company Requirement

For share disposals, the company must be a trading company whose activities do not include substantial non-trading activities. HMRC considers the business as a whole rather than applying a single statutory percentage test. Relevant factors include income, assets, expenses, management time and the company’s history. Activities that can disqualify a company include:

• Holding investment property that generates substantial rental income
• Holding large amounts of cash or investments not needed for the trade
• Non-trading activities that are more than incidental

Substantial investment or other non-trading activity can therefore prevent relief even when the company also carries on a trade.

Joint Ventures and Partnerships

Partnerships

Partners in a trading partnership can claim BADR on the disposal of their partnership interest, provided they have been a partner for at least 2 years.

Joint Ventures

BADR can apply to shares in a joint venture company if the investing company is a trading company and the joint venture is also a trading company. Individual shareholders in the investing company can potentially claim through the investing company.

Associated Disposals

An associated disposal is where you dispose of an asset you own personally that has been used by your partnership or personal company. For the gain on this asset to qualify for BADR:

• You must also be disposing of at least 5% of your partnership interest or shares
• The asset must have been used in the business for the 2-year qualifying period
• Any period of non-business use reduces the qualifying gain proportionally

If you charged the business a market rent for using the asset, the gain attributable to the rental period does not qualify for BADR (since it was an investment use, not a business use).

Interaction with Other Reliefs

BADR interacts with several other tax reliefs and exemptions:

• Annual Investment Allowance — capital allowances claimed on business assets reduce the base cost for CGT purposes
• Rollover relief — gains deferred through rollover relief are not immediately subject to CGT but will use the BADR lifetime limit when they crystallise
• Investors’ Relief — a separate relief for qualifying external investors in unlisted companies, with an 18% rate from 6 April 2026 and a £1 million lifetime limit
• Corporation tax — BADR does not apply to companies; they pay corporation tax on chargeable gains

Record Keeping

To support a BADR claim, you should maintain:

• Share certificates and records of share purchases and disposals
• Partnership agreements and evidence of partnership interest
• Company records showing trading status and your role as officer or employee
• Evidence that all qualifying conditions were met for the 2-year period
• Records of any previous BADR or Entrepreneurs’ Relief claims

Thorough accounting records are essential, particularly for demonstrating the trading company test and the 2-year qualifying period.