Business Asset Disposal Relief in 2026/27: the 18% rate, the £1 million limit, and what still qualifies
Business Asset Disposal Relief still reduces the capital gains tax you pay when selling a trading business, but the rate has climbed from 10% to 14% and now to 18% for disposals from 6 April 2026. This explainer sets out exactly what qualifies, the 5% and two-year tests, the £1 million lifetime limit, and the planning points company owners should settle before signing a sale.
What BADR is, and why the sums have changed
Business Asset Disposal Relief (BADR) is the capital gains tax relief that applies when you sell all or part of a trading business, or shares in your personal trading company. It was called Entrepreneurs' Relief until it was renamed on 6 April 2020, and long-standing owners still refer to it by that name. The relief has not been abolished, but its economics have shifted sharply. For years it charged a flat 10% on qualifying gains up to a lifetime cap. That headline number is now history. Understanding the current rate, the conditions attached to it, and the timing rules is the difference between an exit taxed lightly and one taxed at close to the main rate.
The current rate, and how it rose
The BADR rate has risen in two steps. Gains on qualifying assets disposed of on or before 5 April 2025 were taxed at 10%. Gains disposed of between 6 April 2025 and 5 April 2026 were taxed at 14%. Gains disposed of from 6 April 2026 onwards are taxed at 18%. Because today falls in the 2026/27 tax year, the rate in force for a completion now is 18%. The relief has therefore lost most of its former advantage over ordinary capital gains tax, but it has not disappeared, and on a large gain 18% is still materially below the rate an owner would otherwise face on the slice above the basic-rate band. The date that matters is the date of disposal, which for a share sale is normally the date of the unconditional contract, not the date completion cash arrives.
Selling a trading business or business assets
The first route to BADR is the disposal of all or part of a business you run as a sole trader or as a partner. You must have owned the business throughout at least the two years up to the date of sale, and the business must be a genuine trade rather than an investment or property-letting activity. The relief can also apply where a business has stopped trading, provided you dispose of the assets within three years of the trade ceasing and the two-year ownership test was met before it stopped. Selling an individual asset in isolation while you carry on trading does not qualify; the relief is aimed at the disposal of the business, or an identifiable part of it, not a routine sale of plant or premises.
Shares in your personal trading company
The second and most common route for company owners is a sale of shares. For the two years up to the date of disposal you must have held at least 5% of the ordinary share capital and at least 5% of the voting rights, and you must have been an officer or employee of the company. The company itself must be a trading company, or the holding company of a trading group, meaning its main activities are trading rather than investment. Two conditions catch owners out. The first is the officer-or-employee test, which is easy to overlook where a founder has stepped back before a sale. The second is the trading test, which can fail where a company has accumulated large cash balances or investment property that tip it towards being treated as non-trading. Both should be checked well before heads of terms are signed.
Associated disposals
BADR can extend to what the legislation calls an associated disposal. This is where you sell an asset that you personally own but that the business or company used, such as trading premises held in your own name rather than inside the company, disposed of as part of your withdrawal from the business. The rules here are restrictive. The asset disposal must accompany a qualifying disposal of your interest in the partnership or of your shares, you must be genuinely reducing your involvement, and relief is cut back where rent was charged for the asset. Owners who hold their trading property personally and draw a market rent from the company often find the associated-disposal relief is partly or wholly denied, so this needs modelling in advance rather than assumed.
The two-year clock and the £1 million lifetime limit
Two numbers govern how much relief you actually get. The qualifying holding period is two years: the shareholding, officer or employee status, and trading conditions must all be satisfied throughout the two years ending on the date of disposal. Miss the clock by a week and the relief is lost in full, not reduced. The second number is the lifetime limit. BADR is capped at £1 million of qualifying gains across your lifetime, not per disposal and not per company. Gains above the £1 million ceiling fall out of the relief entirely and are taxed at the main capital gains tax rates. The lifetime limit was cut from £10 million to £1 million in March 2020, so owners relying on figures from an older sale or an older adviser's note should treat the £1 million cap as the live number.
BADR against the main rates, and planning before a sale
For 2026/27 the main capital gains tax rates on gains other than residential property are 18% within any unused basic-rate income tax band and 24% above it, with an annual exempt amount of £3,000. BADR now charges a flat 18% on qualifying gains up to the lifetime limit. The gap has narrowed to the point where, for a higher-rate taxpayer, BADR saves six percentage points on the qualifying slice rather than the fourteen it once saved. That still matters on seven-figure gains, but it changes the planning calculus. Points worth settling before a sale include confirming the two-year clock is already running and will be complete at completion, checking the officer-or-employee condition is met right up to disposal, testing whether the company passes the trading test given its cash and investment holdings, considering whether spouses or family members who each meet the 5% and employment tests can each use their own £1 million limit, and being deliberate about disposal timing given the anti-forestalling rules that were introduced alongside the rate rises. None of this is a substitute for advice on a specific transaction, but each point is a common reason relief is reduced or refused.
Common questions
Is Business Asset Disposal Relief the same as Entrepreneurs' Relief? Yes. It was renamed Business Asset Disposal Relief on 6 April 2020; the conditions are broadly the same but the lifetime limit and rate have since changed. What rate applies if I sell now? For a disposal in the 2026/27 tax year the BADR rate is 18%, having been 10% up to 5 April 2025 and 14% for the year to 5 April 2026. Can I use the £1 million limit more than once? No. It is a single lifetime allowance across all your qualifying disposals; once it is used up, further qualifying gains are taxed at the main capital gains tax rates.
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This article is general information only and does not constitute tax advice. Figures and dates are current as at the date of writing; any worked example is illustrative. Always consult a qualified adviser before acting.