Business Asset Disposal Relief (BADR) reduces the capital gains tax rate to 18% on qualifying gains up to a £1m lifetime limit, following changes introduced in the October 2024 Budget. This is the most important tax relief available to UK business owners selling a qualifying company. Understanding how it works. And whether you qualify. Should be one of the first conversations you have with a tax adviser when exit planning begins.
Prior to the 2024 Budget, BADR was taxed at 10%. The Budget raised it in two stages: to 14% from April 2025 and to 18% from April 2026, aligning it with the lower rate of capital gains tax. The lifetime limit of £1m per individual remains unchanged. Gains above the limit are subject to the standard CGT rate of 24% for higher and additional rate taxpayers.
What changed in the October 2024 Budget?
The October 2024 Budget made two significant changes to BADR:
- The tax rate increased in stages. From 10% to 14% from 6 April 2025, and to 18% from 6 April 2026.
- The lifetime limit of £1m was retained unchanged.
The qualifying conditions. Shareholding threshold, employment requirement, and holding period. Were not changed. The relief remains available to the same people; it simply costs more to use it now.
For many business owners, BADR is still worth having. On a £1m gain, it saves £60,000 compared to the standard 24% CGT rate. But the economics of timing your exit to maximise BADR have changed materially since 2024.
Who qualifies for BADR?
To qualify, you must meet all of the following conditions for at least 24 months before the disposal:
- You hold at least 5% of the ordinary share capital and voting rights in the company
- You are an officer or employee of the company (director, company secretary, or employee)
- You are entitled to at least 5% of the distributable profits and 5% of the net assets on a winding up
The 24-month holding period is calculated to the date of disposal or, in some cases, to the date the company ceased trading if it has been wound up.
| Condition | Requirement |
|---|---|
| Minimum shareholding | 5% of ordinary share capital and voting rights |
| Status | Officer or employee of the company |
| Profit and asset entitlement | 5% of distributable profits and net assets |
| Holding period | At least 24 months immediately before disposal |
| Lifetime limit | £1m per individual |
What disqualifies you from BADR?
Several common situations can reduce or eliminate BADR eligibility:
Shareholding dilution. If your shareholding has fallen below 5%. Through share issuances to investors, management equity schemes, or other dilutive events. You may not qualify. Check your current percentage carefully before assuming eligibility.
Investment company status. BADR applies to trading companies and trading groups. If your company holds significant investment assets. Property, financial investments. It may be classified as an investment company or a company with substantial non-trading activities, which can disqualify the relief.
Recent restructuring. Corporate restructurings, demergers, or changes in the company's trading activities in the 24 months before disposal can create complications. If you have restructured the business, take specific advice on how this affects BADR eligibility.
A worked example
Assume you hold 100% of a company you are selling for £5m enterprise value. Net debt is zero, so equity value is £5m. Your base cost (original investment) was £100,000. The gain is therefore £4.9m.
With BADR:
- First £1m of gains: taxed at 18% = £180,000
- Remaining £3.9m: taxed at 24% = £936,000
- Total CGT: £1,116,000
- Net proceeds after CGT: £3,884,000
Without BADR (e.g. If you do not qualify):
- All £4.9m taxed at 24% = £1,176,000
- Net proceeds after CGT: £3,824,000
BADR saves £60,000 in this example. The maximum saving available given the £1m limit.
Frequently asked questions
Has the BADR rate increased? Yes. It rose from 10% to 14% from April 2025, and to 18% from April 2026. The lifetime limit of £1m per individual remains unchanged.
Can my spouse also claim BADR on the same business sale? Yes, if your spouse also holds qualifying shares and meets the conditions in their own right, they can claim BADR on their own gains up to the £1m lifetime limit. Structuring shareholdings to maximise two sets of BADR relief is a common piece of tax planning. Take specialist advice before any restructuring.
What happens if my shareholding has fallen below 5%? If your holding has diluted below 5%, you will not qualify for BADR on a disposal of those shares. There are some anti-dilution provisions that may preserve BADR eligibility in certain circumstances. Your tax adviser can assess this.
Can I use my BADR lifetime allowance in instalments across multiple business disposals? Yes. The £1m lifetime limit applies across all qualifying disposals throughout your lifetime. If you have previously used part of your allowance on an earlier disposal, the remaining balance is available on future qualifying disposals.
Is there any way to increase the effective BADR limit? The limit is per individual. Spouses or civil partners who each hold qualifying shares can each access a £1m allowance. There is no other way to increase the limit.