Business Asset Disposal Relief (BADR)

What Is Business Asset Disposal Relief?

Business Asset Disposal Relief (BADR) reduces the rate of Capital Gains Tax to 10% on qualifying gains from the disposal of business assets, up to a lifetime limit of £1 million.^[1]

The relief was originally introduced as Entrepreneurs’ Relief in 2008 and renamed by Finance Act 2020. The lifetime limit was reduced from £10 million to £1 million for disposals on or after 11 March 2020.

Without BADR, gains would be taxed at either 18% (basic-rate taxpayers) or 24% (higher and additional-rate taxpayers) for the 2025/26 tax year. BADR therefore saves between 8% and 14% on qualifying gains.

Qualifying Conditions

The conditions depend on whether you are disposing of a whole or part of a business, shares in a company, or individual business assets:^[2]

Disposal of a Business (Sole Trader or Partnership)

• You must be disposing of the whole or part of a business (not individual assets while continuing to trade)
• The business must be a genuine trade — not an investment activity
• You must have owned the business for at least 2 years before the date of disposal

Disposal of Shares

• The company must be a trading company (or the holding company of a trading group)
• You must hold at least 5% of the ordinary share capital
• You must hold at least 5% of the voting rights
• You must be entitled to at least 5% of distributable profits and 5% of net assets on a winding-up (or 5% of sale proceeds)
• You must be an officer or employee of the company (or a company in the same group)
• All conditions must be met for at least 2 years before the disposal

Disposal of Assets After Business Ceases

• The asset must have been used in the business when it ceased
• The business must have been owned for at least 2 years before cessation
• The disposal must take place within 3 years of the business ceasing

The £1 Million Lifetime Limit

BADR applies to qualifying gains up to a cumulative lifetime limit of £1 million.^[1] This means:

• The maximum tax saving is £140,000 (14% × £1m) for a higher-rate taxpayer
• Gains are tracked cumulatively — if you claimed £400,000 of relief on a previous disposal, you have £600,000 remaining
• Once the limit is exhausted, any further gains are taxed at normal CGT rates

How the Relief Works in Practice

BADR qualifying gains are taxed at 10% and use up part of your basic-rate band first. Here is an example:

What Counts as a “Trading Company”?

A company must exist wholly or mainly for the purposes of carrying on a trade to qualify. HMRC uses an 80/20 rule — broadly, non-trading activities (such as investment income or property letting) should not represent more than 20% of the company’s overall activities.^[2]

Factors HMRC considers include:

• The proportion of turnover from trading vs non-trading sources
• The proportion of assets used for trading purposes
• The proportion of time and resources spent on trading
• The proportion of profit arising from trading

Associated Disposals

An “associated disposal” is where you dispose of an asset that you personally own but that has been used by your partnership or company. For example, if you own a property personally and let it to your trading company, disposing of that property at the same time as your shares may qualify for BADR.^[4]

Conditions for an associated disposal:

• Made as part of your withdrawal from the business
• The asset was used in the business for at least 2 years
• You dispose of at least 5% of your interest in the business at the same time
• Any rent paid must have been less than a full market rent (otherwise the gain is restricted)

How to Claim BADR

You claim BADR on your Self Assessment tax return (form SA108, capital gains pages), or by writing to HMRC if you are not within Self Assessment.^[1]

The claim deadline is the first anniversary of 31 January following the tax year in which the disposal was made. For a disposal in the 2025/26 tax year, this means by 31 January 2028.

If you need to report and pay CGT on a UK property disposal within 60 days, you can include a provisional BADR claim in your 60-day return, then confirm it on your Self Assessment return.

Common Pitfalls

• Dipping below 5%: If share dilution (e.g. from new investment rounds) takes you below 5%, you lose eligibility. Consider “forestalling” elections to crystallise a gain at the point you dip below 5%.
• 2-year clock resets: If you acquire additional shares, the 2-year qualifying period for those shares starts from the date of acquisition.
• Non-trading activities: Surplus cash, investment properties, or dormant subsidiaries can taint a company’s trading status.
• Not an officer or employee: A shareholder who is neither a director nor an employee does not qualify, even with a 5%+ holding.

Further Reading

• Investors’ Relief — the alternative 10% relief for qualifying shares in unlisted companies
• Selling a Sole Trader Business — how BADR works in practice for unincorporated businesses
• BADR for Partners — how the relief works for partnership disposals
• CGT Rates (2025/26) — current Capital Gains Tax rate tables
• How to Calculate a Capital Gain — the basic CGT computation steps