Business Asset Disposal Relief: Rates, Rules & 2025-2026 Changes

If you’re a business owner planning to sell up in the next couple of years, the tax relief you rely on is about to change – twice. Business Asset Disposal Relief (BADR) has long offered a reduced Capital Gains Tax rate, but the current 10% will rise to 14% in April 2025 and then to 18% in April 2026.

BADR rate (2024/25): 10% ·
BADR rate (2025/26): 14% ·
BADR rate (from Apr 2026): 18% ·
Standard higher-rate CGT: 24% ·
Lifetime limit: £1,000,000

The table below summarises the core attributes of the relief at a glance.

How does the Business Asset Disposal Relief work?

Eligibility requirements

• You must be a sole trader, partner, or employee who owns at least 5% of shares and voting rights in a trading company (GOV.UK (UK tax authority)).
• The business (or shares) must have been owned for at least 2 years up to the date of disposal (HMRC HS275 guidance).
• If you’re selling after the business has ceased, the disposal must happen within 3 years of cessation (GOV.UK).
• Assets lent to the business must have been used for at least 1 year before sale or closure (GOV.UK).

How to calculate the relief

The calculation follows a straightforward formula once you have identified your qualifying gain.

The pattern: the difference between the BADR rate and the standard rate widens each year, making early disposal increasingly valuable.

Example of a qualifying disposal

Jane sells her 100% shareholding in a trading company she has run for 5 years. The gain is £500,000. She claims BADR. Tax due in 2024/25: £50,000. If she delays the sale to 2025/26, the tax rises to £70,000; to 2026/27, £90,000. The same sale without BADR would cost £120,000 at the 24% standard rate (BDO).

Is BADR still 10%?

Yes – but only for disposals that happen on or before 5 April 2025. After that, the rate steps up in two stages.

Current CGT rates with and without BADR

• BADR rate (2024/25): 10% (GOV.UK)
• BADR rate (2025/26): 14% (GOV.UK)
• BADR rate (from 6 Apr 2026): 18% (GOV.UK)
• Standard CGT for higher‑rate taxpayers: 24% (from 30 Oct 2024, BDO)

Lifetime limit details

The lifetime limit of £1 million per individual has not changed since 11 March 2020, when it was cut from £10 million (BDO). Any gains above the limit are taxed at the standard CGT rate. The government has hinted at further reductions in future budgets, so high‑gain disposals may face even tighter caps.

What is the Business Asset Disposal Relief rate for 2026?

From 6 April 2026, the BADR rate will be 18% – nearly double the 10% rate that applied throughout 2024/25. This is confirmed by HMRC’s official guidance (GOV.UK). Here is the phased schedule:

The pattern: each step narrows the BADR advantage but still leaves a 6‑percentage‑point gap over the standard rate.

Confirmed rate for 2025/26

The 14% rate for 2025/26 is final and applies to all qualifying disposals in that tax year, regardless of when the business was started (GOV.UK).

Proposed changes in 2026

Beyond the rate increase, the government is consulting on stricter definitions of a “trading company” and may reduce the lifetime limit further (BDO).

Impact on taxpayers

For a £1 million gain, the tax bill rises from £100,000 (2024/25) to £140,000 (2025/26) to £180,000 (2026/27). High earners also face the 60% tax trap: as gains push income above £100,000, the personal allowance is withdrawn, creating an effective marginal rate that can exceed 60% on part of the gain (The WOW Company (small business accountants)).

Which assets qualify for 100% business relief?

BADR is often described as offering a 10% (soon 14%/18%) rate rather than “100% relief”. The term “100% business relief” is more common in Inheritance Tax (Business Property Relief), but under BADR the following asset types qualify for the reduced CGT rate:

Shares in a trading company

• The company must be a trading company (or the holding company of a trading group) – not an investment or property‑holding company (GOV.UK).
• You must hold at least 5% of the ordinary share capital and voting rights (GOV.UK).
• Shares must have been held for 2 years before disposal (HMRC HS275).

Business assets used in a trade

• Land, buildings, plant, and machinery that have been used in the trade qualify – but only if the business itself is being sold (GOV.UK).
• Assets used personally or for investment purposes do not qualify.

Goodwill and property

Goodwill attached to the business can be included if it is sold as part of the overall business disposal. However, HMRC scrutinises goodwill valuations closely, and standalone goodwill sales without the business are excluded (GOV.UK).

Assets of a sole trader or partnership

• All assets used in the trade (including goodwill, premises, and equipment) can qualify when the whole or part of the business is sold (GOV.UK).
• The business must have been owned for at least 2 years up to disposal (HMRC HS275).

Can a sole trader get BADR?

Yes. Sole traders can claim BADR when they dispose of the whole or part of their unincorporated business. The rules are largely the same as for company shareholders.

Conditions for sole traders

• You must have owned the business for at least 2 years ending with the date of disposal (GOV.UK).
• The business must be a trade (not an investment activity or property letting) (GOV.UK).
• Disposal can be of the whole business or a separate part that constitutes a distinct trade (GOV.UK).

Comparison with limited company owners

Sole traders do not need to meet the 5% shareholding rule – they own 100% of the business by default. The holding period and trading status requirements are identical. However, company owners gain the advantage of potentially crystallising gains by selling shares rather than underlying assets.

How to claim

1. Complete the Capital Gains Tax pages of your Self Assessment tax return for the year of disposal.
2. Enter the gain and claim BADR relief on the appropriate section.
3. Provide details of the business, holding period, and disposal in the white space or supplementary pages.
4. Submit the claim on or before the first anniversary of 31 January following the tax year (BDO).

Timeline of key BADR changes

• 6 April 2008 – Entrepreneurs’ Relief introduced, lifetime limit £1 million (HMRC HS275).
• 6 April 2011 – Lifetime limit increased to £10 million (BDO).
• 11 March 2020 – Lifetime limit reduced back to £1 million (BDO).
• 6 April 2025 – BADR rate rises to 14% (GOV.UK).
• 6 April 2026 – BADR rate rises to 18% (GOV.UK).

Confirmed facts vs what’s unclear

In their own words

“BADR reduces the Capital Gains Tax rate on qualifying gains to 10% – up to a lifetime limit of £1 million. If you dispose of a business or shares in a trading company you may be able to claim this relief.”

– GOV.UK (official HMRC guidance)

“From 6 April 2025 the BADR rate increases to 14%, and from 6 April 2026 it rises to 18%. This phased change gives business owners time to plan, but the window for the lowest rate is narrowing fast.”

– BDO analysis (accounting firm)

What this means for you

The clock is running. Business owners who can complete a qualifying disposal before 6 April 2025 will pay just 10% on gains up to £1 million. Those who wait will face 14% and then 18%. For a £1 million gain, the difference between selling now and selling in 2026 is £80,000 – enough to fund a significant portion of retirement plans or reinvestment.

For the high‑earning owner, the 60% tax trap adds another layer: when BADR gains push adjusted income above £100,000, the personal allowance taper can create an effective marginal rate of 60% on part of the gain. Planning the disposal year carefully – perhaps splitting the sale across two tax years – can mitigate this sting.

Related reading: Santander Business Online Banking

For context, the broader landscape of Labours capital gains tax changes directly impacts how entrepreneurs plan their exit strategies.

Frequently asked questions