Business Asset Disposal Relief: Capital Gains Tax When You Sell Your Business

Business Asset Disposal Relief (BADR) is the Capital Gains Tax relief that most owners of trading businesses encounter when they sell. It used to be called Entrepreneurs' Relief. If your disposal qualifies, you pay Capital Gains Tax at 18 per cent on qualifying disposals made from 6 April 2026, on up to a lifetime limit of £1 million of qualifying gains (GOV.UK). The rate was 10 per cent for disposals on or before 5 April 2025 and 14 per cent between 6 April 2025 and 5 April 2026, so the date of disposal matters. The relief applies when you sell or dispose of all or part of a trading business, or shares in a trading company.

The relief applies to gains, not to the sale price. The difference between what a buyer pays for your business and the taxable gain on the disposal can be substantial, because the gain is measured against your original cost and can be affected by other reliefs, losses and the way the deal is structured. Our business value section explains how headline price, completion cash and net proceeds differ.

Gains above the £1 million lifetime limit, and gains that do not qualify for the relief, are taxed at the normal Capital Gains Tax rates. Because the limit is a lifetime one, any qualifying gains you have already claimed in earlier disposals count against it.

BADR is claimed through your Self Assessment tax return (HMRC helpsheet HS275). In practice the claim is usually prepared with your accountant, and the figures depend on the completion accounts and the sale agreement, so it is worth raising early in the sale process rather than after completion.

The conditions depend on what you are selling. For a disposal of shares in a trading company, the main tests are that, for at least two years up to the date of disposal (GOV.UK):

• the company was your personal company: you held at least 5 per cent of the ordinary shares and voting rights, and were entitled to at least 5 per cent of either the distributable profits and assets on a winding up, or the sale proceeds if the whole company were sold;
• you were an employee or officer of the company (or of a company in the same trading group); and
• the company was a trading company, or the holding company of a trading group, during that time.

For sole traders and business partners, the equivalent test is that you owned the business, or were a partner in it, for at least two years up to the date you sold or disposed of it. Similar two-year conditions apply where you dispose of assets you used in the business, or assets held by a company or partnership you are leaving.

Shares acquired through an Enterprise Management Incentives option follow different rules: the shares must have been acquired after 5 April 2013, the option must have been granted at least two years before the sale, and the 5 per cent personal company test does not apply. You must still have been an employee or officer throughout (GOV.UK). The detail is set out in HMRC's helpsheet HS275.

Trustees selling assets held in a trust may also qualify in some circumstances, covered in the trust assets section below.

Where business assets or shares are held in a trust, the relief works differently. Trustees can claim BADR on a disposal of trust assets only where a beneficiary of the trust has a qualifying interest and meets conditions that broadly mirror the personal tests: the beneficiary must have been an officer or employee of the company, and the shares must have represented at least 5 per cent of the ordinary share capital and voting rights, for the required period.

Relief on a trust disposal depends on the beneficiary's interest in possession and is set against that beneficiary's own £1 million lifetime limit, with an election made jointly by the trustees and the beneficiary (HMRC helpsheet HS275). Where the beneficiary's interest covers only part of the trust property, the relief is limited proportionately.

Trust disposals are one of the areas where the detail matters most and the scope for error is greatest. If your business or its shares are held in a trust, take advice from a tax adviser with trust experience well before you accept an offer, because restructuring after a sale is agreed is rarely possible.

BADR is one of several reliefs that can apply when a business changes hands, and they are not interchangeable. Investors' Relief is a separate relief with its own £1 million lifetime limit, aimed at external investors who subscribe for new ordinary shares in an unlisted trading company and hold them for at least three years, generally without being an employee or officer. It has no 5 per cent minimum shareholding (GOV.UK).

Rollover relief and holdover relief work differently again: rather than reducing the rate, they defer the gain into a replacement asset or a gift. And where part of the consideration is deferred or paid as an earn-out, the timing of the gain can be as important as the rate. Our guide to earn-outs and deferred consideration covers the commercial side of that structure.

The proposed Founders' Relief, announced by the Government in October 2026, is aimed at a different group again: founders and early investors in high-growth, innovative companies. It is a consultation-stage proposal with strict growth and innovation conditions, and most established SME owners will not qualify for it.

Relief questions are cheapest to answer before a buyer is at the table. The points owners most often wish they had settled earlier are:

• whether your shareholding, role and the company's trading status have met the conditions for the full two years, and whether anything planned (a restructure, a new investor, a property purchase) could break them;
• how much of your £1 million lifetime limit you have already used in earlier disposals;
• how the gain will be calculated on your particular deal structure, including any deferred or contingent consideration; and
• whether anyone else with an interest in the business, including a spouse, a co-owner or a trust, has their own position to protect.

A buyer's due diligence will examine the company's tax history in detail, so it helps to have your own position clear first. Our guide to due diligence when selling your business explains what buyers look at, and heads of terms when selling a business covers the stage where deal structure is usually fixed.

This page is general information, not tax advice. Tax treatment depends on your individual circumstances and cannot be guaranteed in advance. Before acting on any of it, take advice from a qualified tax adviser.