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Business Asset Disposal Relief: Still Worth It in 2025/26?

Business Asset Disposal Relief (BADR), formerly known as Entrepreneurs’ Relief, remains one of the most valuable tax incentives available to business owners in the UK — allowing them to pay Capital Gains Tax (CGT) at a reduced rate of 10% on qualifying business disposals.

But with the lifetime allowance significantly reduced in recent years and HMRC applying strict conditions, many business owners are asking whether BADR is still worth pursuing in 2025/26.

This post looks at how BADR works today, what’s changed, and when it remains a valuable planning tool for directors, shareholders, and sole traders preparing for a business sale or closure.

What Is Business Asset Disposal Relief?

BADR is a form of CGT relief that reduces the tax rate on the first £1 million of qualifying lifetime gains to 10%, rather than the standard 20% rate applied to most business disposals.

It applies to:

  • Sole traders disposing of their business
  • Partners in a trading partnership
  • Shareholders selling shares in a trading company

The aim is to reward business owners who have built and run a business over time — encouraging entrepreneurship and investment.

What’s the Current Lifetime Limit?

As of 2025/26, the lifetime limit for BADR remains at:

  • £1 million of qualifying gains (lifetime cap)
  • 10% CGT rate on those gains
  • 20% CGT rate on gains above the £1 million cap (for higher-rate taxpayers)

This is a per individual limit, and the £1 million cap applies to all qualifying disposals over your lifetime.

This is a sharp reduction from the previous £10 million cap that existed before 11 March 2020.

If you’ve already claimed BADR in the past and used some (or all) of your lifetime limit, the relief available on future disposals will be reduced accordingly.

Who Qualifies for BADR?

To qualify for BADR in 2025/26, you must meet all the relevant conditions throughout a qualifying period of two years leading up to the disposal.

For Sole Traders or Business Owners:

  • You must own the business (as a sole trader or business partner)
  • The business must be trading, not an investment business (e.g. property letting)
  • You must be disposing of:
    • The whole business
    • Or part of it as part of discontinuing the business

For Shareholders:

  • You must be an employee or officer of the company
  • The company must be a trading company, or the holding company of a trading group
  • You must own:
    • At least 5% of the shares, 5% of voting rights
    • And be entitled to at least 5% of distributable profits and 5% of assets on winding up

  • The shares must have been held for at least two years

For all cases, the disposal must be of business assets, and the conditions must be met right up to the date of disposal.

How Much Tax Could You Save?

Without BADR, gains on business disposals are taxed at:

  • 10% if within the basic rate band (after allowances)
  • 20% for higher and additional rate taxpayers

With BADR, qualifying gains are taxed at 10%, regardless of your tax band.

Example:

You sell your business and realise a gain of £600,000.

  • With BADR: CGT at 10% = £60,000
  • Without BADR: CGT at 20% = £120,000

Tax saved: £60,000

For gains exceeding £1 million (over your lifetime), only the first £1 million qualifies for the 10% rate — the rest is taxed at standard CGT rates.

When Is BADR Most Valuable?

Despite the reduced lifetime limit, BADR still delivers significant value — particularly when:

  • You are selling a company or retiring
  • You are liquidating a company using a Members’ Voluntary Liquidation (MVL)
  • You are selling part of a business that qualifies independently
  • You want to exit before other CGT reliefs are tightened

The 10% tax rate is still one of the lowest effective rates in the UK tax system. When combined with other reliefs (e.g. the £3,000 annual CGT exemption), it can be a very efficient route to extract value from your business.

Common Mistakes to Avoid

HMRC enforces the qualifying conditions strictly. Here are common pitfalls that can cause BADR claims to fail:

1. Failing the 5% Shareholding Test

You must own 5% of shares, voting rights, profits, and assets on winding up. Simply holding 5% of shares isn’t enough if there are different share classes or preference shares.

2. Not Being an Officer or Employee

Passive investors are not eligible. You must have a formal role in the business — as a director, company secretary, or active employee — for the entire two-year period.

3. Incorrect Timing of Exit or Liquidation

If the company ceases trading, shares must be disposed of within three years to qualify. If you delay too long after a business has ceased, BADR may be lost.

4. Company Not Being a Trading Company

If the business has significant investment activity (e.g. letting property, managing investments), it may not qualify. HMRC applies strict tests on “substantial” trading activity, typically expecting 80% or more of activities, income, and assets to relate to trading.

Planning Ahead: How to Maximise BADR

If you’re considering selling your business or retiring, take the following steps at least two years in advance:

  • Ensure shareholding structure meets the 5% test
  • Review your role in the company to meet employee/officer condition
  • Check whether your company meets the trading company test
  • Consider the impact of any planned investment activity on qualifying status
  • Discuss timing of sale vs liquidation with your accountant

A Members’ Voluntary Liquidation (MVL) may still allow shareholders to benefit from BADR — but only if all the qualifying conditions are met and properly documented.

Is BADR Under Threat?

While BADR has survived recent Budgets without cuts, it remains a politically visible relief. With other CGT changes already taking place (such as rate reductions on residential property), there is always the possibility that:

  • The 10% rate could be increased
  • The £1 million lifetime limit could be reduced further or removed
  • The relief could be narrowed further or replaced

Using BADR while it is still available and effective may be prudent, especially for business owners approaching retirement or planning a sale.

Summary

Despite a lower lifetime limit, Business Asset Disposal Relief is still highly valuable for qualifying business owners in 2025/26. A flat 10% tax rate on gains up to £1 million represents a substantial saving compared to the standard CGT rate of 20%.

However, strict conditions must be met, and poor timing or misunderstanding the rules can easily cost you the relief. Planning early, reviewing your structure, and seeking professional advice are essential steps before any disposal or business exit.

Key Actions:

  •  Check you meet all qualifying conditions
  •  Review timing of your exit or company liquidation
  •  Document your role and shareholding accurately
  •  Consider acting soon in case of future rule changes

BADR might not be as generous as it once was — but for many, it’s still worth it.x

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