What You Need to Know About Business Asset Disposal Relief (BADR)

It’s essential to understand how Business Asset Disposal (BADR) works, if you’re considering or preparing to wind down your business. Known previously as Entrepreneurs’ Relief, it can reduce the amount of tax you pay on disposals of qualifying business assets significantly.  

This blog looks at what BADR does, who qualifies, how you’re able to claim and what upcoming changes to be aware of.  

• BADR enables eligible individuals to pay a lower tax rate of 14% on Capital Gains, up to a lifetime limit of £1 million, for qualifying disposals from 6 April 2025. 

• From 6 April 2026 the rate will increase to 18% from 14% for those disposals. 

• To qualify, you generally need to have owned a minimum of 5% of shares and voting rights, for at least 2 years in a trading company. 

• The claim is then made via the Capital Gains supplementary pages within your Self-Assessment Return. 

BADR is designed to reduce the Capital Gains Tax (CGT) rate on certain business disposals.  

It applies to: 

• Lifetime gains up to a value of £1 million when you dispose of qualifying assets. 

• Gains above the £1 million limit are taxed at the standard CGT rates.  

• Note that from 6 April 2026 BADR will increase from 14% to 18%. 

To claim BADR you must meet several of the following conditions: 

• You must have owned shares within the company for at least 2 years before their disposal. 

• You must control at least 5% of the company’s shares and 5% of the voting rights throughout those 2 years. 

• You must also be entitled to at least 5% of either:- 

• The available profits for distribution and assets on winding up; or 

• Disposal proceeds if the company is sold. 

• You must also be an employee or office holder of the company (or of a company from within the same group). 

• The company must be a trading company (or the holding company of a trading group), and not just investment activities.  

• If your shareholding falls below 5% due to further issues of shares, you might still be eligible. We’d advise getting in touch with your Client Director to discuss further. 

You may still be able to claim for BADR, even if your company ceases to trade or becomes dormant. You’re able to sell your shares within a 3-year period of the cessation of trading. 

 Whilst the process of claiming is straightforward, it must be done correctly: 

• You must claim BADR via the Capital Gains supplementary pages of your Self-Assessment Tax Return. 

• For any assets sold during the 2024-25 tax year, the deadline to claim is 31 January 2027. 

• If you decide to close a company and distribute its reserves as a ‘capital distribution’ ensure that all eligibility criteria are met to avoid it being taxed as a dividend. 

• Beware of the anti-avoidance rules in place to prevent business owners from gaining unintended tax advantages – for example, if you sell your business and claim BADR, and then decide to start a ‘substantially similar business’ within a two-year period, HMRC may treat the distribution as a dividend instead. 

• Ensure to always keep clear records of shareholdings, voting rights, trading status and timings of disposal. All these elements underpin qualification. 

• Speak to your Client Director and seek specialist advice – BADR rules change and any small changes can affect eligibility (such as the rate increase that’s coming in 2026). 

If you ever decide to sell or shut down your business, understanding how BADR works is essential. With the correct planning in place BADR can reduce your tax liability significantly, especially given the upcoming change in tax rate in 2026. However, eligibility is conditional on precise criteria around ownership, trading activity, and timing.  

Don’t ever leave it to chance, ensure you discuss your plans surrounding BADR with your Client Director for complete clarity. If you’re ready to take the next step, get in touch to assess your eligibility and plan your disposal strategy.