What is Business Asset Disposal Relief?
Business Asset Disposal Relief (BADR), previously known as Entrepreneurs’ Relief, remains one of the most important tax reliefs available to business owners in the UK. However, in April 2025 the rules changed, and a further change is coming in April 2026. These alterations mean that many business owners who were previously planning to exit, retire, or restructure their companies need to revisit their assumptions — and potentially act sooner rather than later.
In this article, we set out what the current rules are, how they have changed in 2025/26, and what planning opportunities may still be available before the next increase in April 2026.
The current position as of November 2025
As of today, BADR allows qualifying business owners to pay a reduced Capital Gains Tax (CGT) rate of 14% on the disposal of certain business assets. This rate has applied since 6 April 2025, replacing the longstanding 10% rate that had been in place since the relief was introduced in 2008.
This is no longer speculation — the 14% rate is now in force. It applies to disposals of qualifying business assets made on or after 6 April 2025. The relief still applies to the first £1 million of lifetime qualifying gains, and the core conditions for eligibility remain unchanged. However, a further increase in the BADR rate to 18% is already legislated to take effect from 6 April 2026, affecting disposals made in the 2026/27 tax year and beyond.
A recap: What is Business Asset Disposal Relief?
BADR is a relief from Capital Gains Tax that applies to individuals (not companies) when they dispose of certain qualifying business assets. If the conditions are met, the individual pays a reduced CGT rate on the gain — historically 10%, now 14%, and set to rise to 18%.
Assets that may qualify include:
- Shares in a trading company, where the seller is an employee or officer and holds at least 5% of the shares and voting rights for at least two years.
- The whole or part of a business operated as a sole trader or partnership.
- Business assets (such as property or equipment) used in a business, in limited circumstances following cessation.
BADR is only available to individuals, and the business or company must meet certain qualifying conditions throughout the two years leading up to the disposal.
The tax impact of the 2025 and 2026 rate increases
Under the original BADR rate, a business owner could pay just 10% on qualifying gains. The increase to 14% in April 2025, and the confirmed rise to 18% from April 2026, has a clear impact on exit planning.
To illustrate:
| Tax Year | Rate | Tax on £1 million gain |
|---|---|---|
| 2024/25 | 10% | £100,000 |
| 2025/26 | 14% | £140,000 |
| 2026/27 | 18% | £180,000 |
Each increase of 4 percentage points represents a £40,000 rise in tax on the full £1 million of BADR-qualifying gains. For larger disposals, the portion above the £1 million lifetime limit is taxed at standard CGT rates — currently 20% for business assets or 24% for residential property. As such, it’s essential to factor in the entire gain when calculating your tax position.
Who is most affected?
These changes particularly affect:
- Owner-directors planning to sell shares in their own trading company
- Sole traders or business partners planning to sell or retire
- Landlords or property developers disposing of business assets used in a trading activity (but not investment property, which does not qualify)
- Family businesses planning internal succession via share transfers
If you have previously sold a qualifying business or shares and used part of your lifetime BADR allowance, you may have less than £1 million remaining at the reduced rate. If you have not made any previous claims, the full £1 million may still be available — but you will now pay 14%, rising to 18% next April, unless you dispose before then.
What hasn’t changed?
While the CGT rate has changed, the qualification criteria remain exactly as before. In summary, the key rules include:
- You must be an individual (not a company or trust).
- For share disposals, the company must be a trading company, and you must be a director or employee.
- You must have held at least 5% of the shares and voting rights for at least two years before the date of sale.
- If you are disposing of a sole trade or business assets, you must have owned and operated the business for two years and meet the conditions if there has been a cessation.
- The £1 million lifetime gains limit still applies — and is not expected to increase.
Spouses and civil partners each have their own £1 million lifetime allowance. So tax planning between partners can still offer advantages, provided the qualifying conditions are met.
Planning opportunities before 6 April 2026
If you are planning to dispose of a qualifying business or shares in the next 12–18 months, there may still be a strong case to accelerate the transaction before 5 April 2026, in order to benefit from the 14% rate.
While it is not as generous as the 10% rate that ended in April 2025, it still offers meaningful savings when compared to the 18% or 20% rates that will apply thereafter.
Key planning points include:
- Finalise disposals early: For deals currently in negotiation, ensure that legal completion takes place before 6 April 2026 to lock in the 14% rate.
- Restructure before sale: In some cases, it may be possible to reorganise ownership or company structure to maximise eligibility. For example, transferring shares to a spouse or family member with unused BADR allowance.
- Document everything carefully: Ensure that you can evidence two years of qualifying conditions, especially for shareholdings or directorship.
- Consider earn-outs and staged payments: If sale proceeds are split over multiple years, you may be able to manage the use of your BADR allowance more effectively.
What if you can’t sell before April 2026?
In many cases, the timing of a business sale is driven by commercial, rather than tax, considerations. If a disposal cannot take place before April 2026, it may still be possible to manage the tax position effectively.
Options to consider include:
- Spreading disposals over time (if possible) to maximise allowances
- Exploring other reliefs, such as Investors’ Relief, where available
- Maximising base cost deductions and making use of any available capital losses
- Using holdover or rollover relief in restructuring or gifting scenarios
- Transferring shares to a spouse with unused BADR eligibility or basic rate bands
Care must also be taken with business asset disposals following cessation of trade. If business assets are disposed of more than three years after the business ends, BADR will no longer be available — another reason to plan ahead.
Final thoughts
The change in BADR from 10% to 14% in April 2025 has already affected business exit planning across the UK. With the next increase to 18% already legislated for April 2026. The window of opportunity to benefit from the current 14% rate is closing fast.
While BADR still offers a tax advantage compared to standard CGT rates, the difference is narrowing — and the overall benefit is diminishing. For business owners approaching retirement, looking to sell to a third party, or passing shares on to family. This tax year may be a critical time to act.
At Merranti Accounting, we are actively working with clients to assess their eligibility, model their tax liabilities, and evaluate whether an accelerated disposal is appropriate. If you are considering selling a business or company in the next 12–24 months. We recommend seeking advice before the end of the 2025/26 tax year.
Considering a business sale before the BADR rate rises again?
Speak to the Merranti team to review your disposal plans and assess whether the current 14% rate can still be secured.
