Business Asset Disposal Relief (BADR)
Reduce the capital gains tax on qualifying business disposals.
This guide explains who can claim BADR, what counts as a qualifying disposal, how the lifetime limit works, key rule changes, practical planning tips, and includes an interactive calculator to estimate your potential tax.
What is Business Asset Disposal Relief (BADR)?
Business Asset Disposal Relief (BADR) — formerly known as Entrepreneurs’ Relief — reduces the Capital Gains Tax (CGT) rate you pay when you sell all or part of your business, or shares in a qualifying company.
If you qualify, BADR can significantly reduce the tax rate on your gain. It applies to individuals (and, in limited cases, trustees and personal representatives) who meet specific ownership, employment, and trading conditions.
Important: Rates and thresholds below are correct as of October 2025 and may change in future tax years.
Key changes and why timing matters
BADR rates have changed over recent tax years, and further changes are scheduled. The disposal date determines which BADR rate applies — timing your sale can materially affect how much tax you pay.
Key points:
BADR applies a reduced CGT rate to qualifying gains, but that rate depends on the disposal date.
Each individual has a lifetime limit for the total amount of qualifying gains that can benefit.
Certain reorganisations, share-for-share exchanges, or cessation disposals may have strict deadlines for elections or claims.
Who can claim BADR?
BADR is designed for individuals disposing of qualifying business assets or shares.
To claim, you must meet all of the following broad tests:
Status: You are an individual (not a company). Trustees and executors can sometimes qualify in limited circumstances.
Ownership: You must own the shares or business assets for at least two years before disposal.
Employment or office: For shares, you must be an employee or officer of the company (or one in the same group).
Trading company: The company must be a trading company or the holding company of a trading group — not mainly an investment business.
Shareholding: You must usually hold at least 5% of both ordinary share capital and voting rights and be entitled to 5% of distributable profits and assets on winding up.
Some reorganisations, group structures or dilution of shareholdings can unintentionally remove eligibility, so advance tax advice is recommended.
What counts as a qualifying disposal?
You may be eligible for BADR on:
Sale of all or part of a sole trader or partnership business.
Disposal of shares in your “personal company” (if conditions are met).
Disposal of business assets after the business ceases (within the allowed time).
“Associated disposals” where you dispose of a personally owned business asset in connection with the disposal of shares or partnership interest.
Investment assets or passive shareholdings do not qualify.
Eligibility Criteria for Business Asset Disposal Relief (BADR)
To qualify for Business Asset Disposal Relief (BADR), you must meet specific conditions set by HMRC at both the individual and business levels. These rules determine who can claim and which assets are eligible for the reduced 10% Capital Gains Tax rate.
1. Who Can Claim BADR
BADR is available to individuals (not companies) who are disposing of qualifying business assets. This includes:
Sole traders or partners selling part or all of their business
Company directors or employees selling shares in their personal trading company
Individuals disposing of assets used in a business that has ceased trading
2. Qualifying Conditions for Sole Traders and Business Owners
If you’re selling your business as a sole trader or partner, you must meet all of the following:
You have owned the business for at least two years up to the date of disposal.
The business is a trading business, not mainly an investment business (e.g., property letting or share dealing).
The disposal involves the whole business or a distinct part of it (not just isolated assets).
The business has ceased trading within the last three years if you’re disposing of the assets after closure.
| Eligibility Factor | Requirement |
|---|---|
| Ownership period | Minimum 2 years before disposal |
| Type of business | Must be a trading business, not investment-based |
| What is sold | Whole business or identifiable part of it |
| If business has ceased | Assets must be sold within 3 years of cessation |
3. Qualifying Conditions for Shareholders (Company Owners)
If you’re disposing of shares in a trading company, you must meet all the following criteria:
The company is your personal trading company (you must hold at least 5% of ordinary share capital and voting rights).
You are an employee or office holder (e.g., director) of the company or a company within the same group.
You have owned the shares for at least two years up to the date of disposal.
The company’s main activity is trading, not investment (although up to 20% non-trading activity is tolerated).
If the company has been sold, merged, or ceased trading, BADR may still apply within three years of cessation, provided the qualifying conditions were met before that point.
4. Associated Asset Disposals
You can also claim BADR on the sale of business assets associated with a withdrawal from the business, for example:
Selling a property or machinery used in the business when you retire or reduce your involvement.
Disposing of assets used by your company if you are a director or shareholder selling your shares at the same time.
However, to qualify:
The asset must have been used for business purposes for at least two years before the sale.
You must reduce your shareholding or partnership interest by at least 5%.
The asset should be sold as part of your withdrawal or retirement, not simply a regular asset disposal.
5. BADR and Business Partnerships
Partners in a trading partnership can claim BADR when disposing of:
Their entire interest in the partnership, or
A distinct part of the business.
You cannot claim BADR on the sale of individual partnership assets unless the disposal forms part of a wider exit or cessation of trade.
6. Ineligible Scenarios
You cannot claim BADR if:
You’re selling non-trading assets (such as investment properties or shares in an investment company).
The business is mainly involved in property letting, securities, or investments.
The ownership or employment period is less than two years.
The disposal is part of a tax avoidance arrangement (HMRC may deny relief).
7. Tip: Keep Evidence and Records
HMRC expects claimants to maintain clear documentation showing ownership, trading activity, and business involvement. Keep:
Partnership agreements and share certificates
Business accounts confirming trading nature
Records showing when trading began and ended
These records strengthen your position if HMRC reviews your claim.
Lifetime limit and how it works
Once you’ve used your lifetime BADR limit, future qualifying disposals will be taxed at normal CGT rates.
| Element | Explanation |
|---|---|
| Lifetime BADR limit | Each individual has a fixed lifetime cap on qualifying gains that can receive BADR. |
| Aggregation | All qualifying disposals during your lifetime are aggregated to track how much of your allowance has been used. |
| Excess gains | Any gains above your remaining lifetime allowance are taxed at the standard CGT rates. |
Example:
If you have £400,000 of your lifetime allowance left and make a qualifying gain of £600,000, the first £400,000 qualifies for BADR; the remaining £200,000 is taxed at normal CGT rates.
How to Claim Business Asset Disposal Relief (BADR)
Once you’ve confirmed that you meet the eligibility requirements, you’ll need to make a formal claim for Business Asset Disposal Relief (BADR). HMRC requires this to be done on or before the first anniversary of the 31 January following the end of the tax year in which the disposal took place.
In other words, if you sold your business in June 2025, you must claim by 31 January 2027 (the deadline for the 2025/26 tax year).
Step 1: Identify Qualifying Disposals
Determine whether your sale or disposal qualifies for BADR:
Selling all or part of your sole trade or partnership business
Selling shares or securities in your personal trading company
Selling assets associated with a business you are leaving
If your disposal falls under one of these categories and you meet the two-year ownership and trading conditions, you can proceed with the claim.
Step 2: Calculate Your Gain
To claim BADR, you must calculate your Capital Gain — the difference between the sale price and the cost (or market value) of the asset when you acquired it.
Example:
If you bought a business for £50,000 and later sold it for £250,000, your total gain is £200,000.
With BADR, this gain would be taxed at 10%, meaning a £20,000 tax bill, rather than the standard Capital Gains Tax rate (potentially 20%).
Step 3: Make Your Claim to HMRC
You can claim BADR through your Self Assessment tax return or, in some cases, by writing directly to HMRC.
Option 1 – Claim via Self Assessment (recommended)
When completing your Self Assessment tax return:
Go to the Capital Gains Summary (SA108) section.
Tick the box indicating you are claiming Business Asset Disposal Relief.
Include details of your disposal: description, dates, and amounts.
State the amount of relief claimed and the qualifying gain.
HMRC will then apply the 10% tax rate to your qualifying gain when calculating your Capital Gains Tax.
Option 2 – Claim in Writing
If you are not required to complete a tax return, you can write to HMRC including:
Your full name, National Insurance number, and UTR
Details of the business or asset disposed of
The date and nature of the disposal
The gain amount
A statement confirming you meet all BADR conditions
Send this to your HMRC Capital Gains Office within the claim deadline.
Step 4: Keep Documentation
HMRC may request supporting evidence to verify your claim. Keep:
Sale contracts or completion statements
Share certificates or partnership agreements
Proof of trading activity (e.g. invoices, bank statements, accounts)
Employment or directorship records (for company shareholders)
Maintaining a well-documented paper trail ensures that your claim stands up to scrutiny.
Step 5: Understand the Lifetime Limit
You can claim Business Asset Disposal Relief on qualifying gains of up to £1 million during your lifetime. Once you reach this limit, any future qualifying disposals will be taxed at the standard Capital Gains Tax rate (usually 20% for higher-rate taxpayers).
| Factor | BADR Rule |
|---|---|
| Tax rate on qualifying gains | 10% |
| Lifetime limit | £1 million in total qualifying gains |
| Claim deadline | 1 year after 31 January following the tax year of disposal |
Step 6: Apply Relief Across Multiple Disposals
If you’ve made several qualifying disposals across different tax years, each claim contributes towards your £1 million lifetime limit.
You can claim multiple times, provided you have not exceeded that cap.
Example:
Gain from first sale (2023/24): £400,000 → 10% = £40,000 tax
Gain from second sale (2025/26): £600,000 → 10% = £60,000 tax
Total lifetime gains claimed under BADR = £1 million
Beyond this limit, any further disposals are taxed at normal Capital Gains Tax rates.
Step 7: Seek Professional Advice
Business Asset Disposal Relief is complex, especially for company shareholders, mixed-use assets, or reorganisations. Mistakes in timing or structure can easily disqualify a claim.
Working with a qualified accountant or tax advisor ensures:
Your disposal is structured correctly
The business qualifies as a trading company
All deadlines and documentation are correctly handled
Even a small planning error — such as selling too early or restructuring shares incorrectly — can result in losing BADR altogether.
Common Mistakes That Invalidate BADR Claims
| Mistake | Why it fails |
|---|---|
| Selling shares in a non-trading company | Fails the trading condition — BADR only applies where the company is a trading company (not an investment vehicle). |
| Owning shares for less than two years | Breaches the minimum ownership/employment period required to qualify for BADR. |
| Selling individual assets not part of a business exit | Not a qualifying disposal — BADR applies to whole/part business disposals, qualifying share sales, or associated disposals tied to an exit. |
| Claiming after the deadline | HMRC will normally reject late claims — meet the statutory time limits for claims and elections. |
| Losing required shareholding or voting rights (below 5%) | You no longer meet the personal company test — BADR requires minimum share/voting thresholds for share disposals. |
| Insufficient evidence of trading or employment | HMRC will refuse relief if you cannot substantiate trading activity, employment/officer status, or the two-year period. |
| Structuring disposals as part of avoidance schemes | Anti-avoidance rules can deny BADR where disposals are part of tax avoidance arrangements. |
Business Asset Disposal Relief (BADR) Calculator
Practical planning tips
Timing matters: Small changes in disposal date can alter the BADR rate.
Track your allowance: Monitor how much of your lifetime limit you’ve used.
Company changes: Diluting shareholdings or changing structure can affect eligibility.
Documentation: Keep acquisition costs, share certificates, and trading evidence.
Seek advice: Complex reorganisations, group disposals, or trust cases need professional input.
Example scenarios
| Scenario | Qualifying? | Gain | Remaining BADR | Tax on qualifying part | Comments |
|---|---|---|---|---|---|
| Sale of company shares before 6 April 2025 | Yes | £800,000 | £1,000,000 | £80,000 (10%) | Full gain covered by BADR at 10% |
| Same sale completed in May 2025 | Yes | £800,000 | £1,000,000 | £112,000 (14%) | Higher BADR rate increases CGT |
| Second disposal later same tax year | Partly | £300,000 | £200,000 | £28,000 BADR (14% on £200k) + rest at normal CGT | Excess taxed at standard CGT |
BADR Frequently Asked Questions
When does BADR apply?
When you dispose of qualifying business assets or shares and meet all conditions for ownership, employment, and trading status.
How much is the BADR lifetime limit?
Each individual has a fixed lifetime limit on the total qualifying gains eligible for BADR. Check how much of your limit you’ve already used.
Does BADR apply to property?
Only if the property is used in the business and sold in connection with a qualifying business disposal.
Can trustees or executors claim BADR?
Yes, in limited circumstances and subject to additional rules.
Is BADR automatic?
No. You must claim BADR via Self Assessment or in writing to HMRC.
Get professional help
This page provides general information only and should not be taken as tax advice.
If you are planning to sell your business or company shares, it’s worth reviewing your position early to make sure you meet the two-year qualifying conditions and optimise timing.
Speak to our tax specialists today to confirm eligibility and make a claim.
Disclaimer
This information reflects the rules and rates as at 16 October 2025. Tax rules can change, and individual circumstances vary. Always seek professional advice before making disposal decisions.