BADR Tax Rates: The £1M Limit and the April 2026 Change

Business Asset Disposal Relief (BADR) charges a reduced rate of Capital Gains Tax on qualifying business sales, and the BADR tax rates now sit on a two-step schedule: 14% on qualifying gains for disposals between 6 April 2025 and 5 April 2026, then 18% from 6 April 2026 onward, in both cases capped at a £1 million lifetime limit. Compare that to the standard Capital Gains Tax rates of 18% (basic rate) and 24% (higher rate) and the relief still saves money, though less than under the old flat 10% rate that applied before the Autumn Budget 2024. BADR was previously known as Entrepreneurs’ Relief.

The Current BADR Rate Schedule

Following the October 2024 Budget, the rate rose in two stages:¹

6 April 2025 to 5 April 2026: 14% on qualifying gains
6 April 2026 onward: 18% on qualifying gains

Which rate applies depends on the date of your disposal. For a share sale, that is normally the date the contract becomes unconditional, not the date the money arrives. Anti-forestalling rules can override this in certain cases straddling the April 2026 change.

At 18%, the biggest possible saving on the full £1 million lifetime allowance is £60,000, being the 6-percentage-point gap against the 24% higher rate. Under the old 10% rate, the equivalent saving was £100,000.²

The £1 Million Lifetime Limit

BADR is capped at £1 million of qualifying gains across your entire lifetime. Every claim reduces what’s left. Once you’ve used the full amount, further business gains are taxed at the standard Capital Gains Tax rates.³

The cap is cumulative across tax years and across separate businesses. If you claimed £400,000 of relief when you sold one company several years back and now sell a second with a £700,000 gain, only £600,000 of that second gain qualifies for BADR. The remaining £100,000 is taxed at your standard rate. HMRC tracks the running total, so keep your own records.

Who Qualifies

Whether the reduced rate is available depends on what you’re selling. Different tests apply to share disposals, unincorporated business disposals, and asset sales tied to leaving a business.

Company Shares

The company must be your “personal company.” You need to hold at least 5% of the ordinary share capital and, through that holding, exercise at least 5% of the voting rights.⁴

You must also meet one of two further tests. Either you’re entitled to at least 5% of the company’s distributable profits and at least 5% of its assets on a winding up, or your shares would give you at least 5% of the proceeds if the entire ordinary share capital were sold. The second alternative is often overlooked and can save a claim where profit-sharing rights are structured differently.⁴

Beyond ownership, you must have been an officer or employee of the company (or a group company) throughout the two years ending on the disposal date, and the company must have been a trading company or the holding company of a trading group for that same period.⁵

Sole Traders and Partnerships

You can claim BADR when you sell the whole business or a distinct, identifiable part of it. Selling a single asset while the business continues does not qualify. You must have owned the business for at least two years before the disposal.³

If the business has already ceased, you can still claim on the sale of assets that were used in the trade, provided you sell them within three years of cessation and the business operated for at least two years before it stopped.³

Associated Disposals

BADR can cover the sale of a personally owned asset used by your partnership or company, such as a commercial property occupied by the business. The disposal must form part of your withdrawal from the business, and you must also dispose of at least a 5% interest in the partnership assets or make a material disposal of shares. The asset must have been used for business purposes for at least three years before disposal. Relief is restricted proportionately if you charged rent for the asset or if it wasn’t used for business purposes throughout your ownership.⁶

Working Out the Tax

Take the sale proceeds and subtract the original cost plus allowable expenses such as legal fees, professional valuations, and improvement costs. That gives the gain. Deduct the Capital Gains Tax annual exempt amount, which is £3,000 for the 2025–26 tax year.⁷

Apply the BADR rate to the qualifying portion of the gain, up to whatever remains of your £1 million lifetime limit. Any gain above the cap is taxed at your standard rate: 18% within the basic Income Tax band, 24% at higher or additional rate.²

An example. You sell your shares in April 2026 for £800,000, having originally paid £100,000. The gain is £700,000. After the £3,000 annual exempt amount, the taxable gain is £697,000. If you’ve never claimed BADR before, the full £697,000 qualifies at 18%, giving a tax bill of £125,460. Without BADR, a higher-rate taxpayer would owe £167,280 at 24%, so the relief is worth roughly £41,820.

Anti-Forestalling Around the April 2026 Change

Because the rate increased in two stages, HMRC introduced rules to stop people locking in the lower rate by exchanging contracts in 2025–26 and completing later. If you entered into an unconditional contract during the 2025–26 tax year but the disposal completes on or after 6 April 2026, the disposal date is treated as the completion date, so 18% applies rather than 14%.¹

The rule doesn’t apply to “excluded contracts” where you can show you didn’t enter the contract to gain a tax advantage from the timing, and (for connected parties) that the contract was wholly commercial. A de minimis exception also removes the rule if the total gains on all your excluded contracts don’t exceed £100,000.¹

Two Restrictions That Catch People Out

Goodwill Transferred to a Close Company

If you transfer goodwill to a close company and you or a connected person hold 5% or more of that company’s shares or voting rights immediately after the sale, the goodwill gain does not qualify for BADR. This has applied since December 2014 and commonly affects sole traders incorporating and transferring goodwill into their new limited company. A narrow exception exists if you dispose of the shares within 28 days and drop below 5% in the acquiring company, and HMRC can extend the 28-day window.⁸

Phoenixing (TAAR)

Winding up a company to extract capital at CGT rates with BADR, then starting a similar trade through a new company, is a pattern HMRC actively targets. The Targeted Anti-Avoidance Rule applies where four conditions are met: you held at least 5% of the company before winding up; the company was a close company at any point in the two years before liquidation; you carry on the same or a similar trade within two years of receiving the distribution; and it’s reasonable to assume tax avoidance was a main purpose of the winding up.⁹

If all four conditions apply, HMRC reclassifies the capital distribution as an income distribution taxed at dividend rates, eliminating the BADR benefit and often producing a higher total tax bill. The fourth condition is usually the decisive one, turning on whether the winding up and restart had a genuine commercial rationale.

How and When to Claim

You claim BADR through Self Assessment, or by completing Section A of the HMRC Business Asset Disposal Relief helpsheet and sending it separately. For a disposal in the 2025–26 tax year, the claim deadline is 31 January 2028. Miss it and you lose the relief entirely, even if the disposal plainly qualified.¹⁰

The general pattern is a claim deadline of the 31 January falling roughly 22 months after the end of the tax year of disposal. For a disposal after 5 April 2026 (in 2026–27), the deadline is 31 January 2029. Filing early is the simplest defence against losing tens of thousands of pounds to an administrative slip.

1
GOV.UK. Capital Gains Manual CG64174 – Business Asset Disposal Relief: Rates From April 2025
2
GOV.UK. Capital Gains Tax: What You Pay It On, Rates and Allowances – Rates
3
GOV.UK. Business Asset Disposal Relief
4
Legislation.gov.uk. Taxation of Chargeable Gains Act 1992 – Section 169S
5
Legislation.gov.uk. Taxation of Chargeable Gains Act 1992 – Section 169I
6
GOV.UK. Capital Gains Manual CG63998 – BADR: Qualifying Associated Disposals by Individuals
7
GOV.UK. Capital Gains Tax: What You Pay It On, Rates and Allowances
8
GOV.UK. Capital Gains Manual CG64006 – Business Asset Disposal Relief: Exclusion of Goodwill in Certain Circumstances
9
GOV.UK. Company Taxation Manual CTM36305 – Company Winding Up TAAR
10
GOV.UK. Business Asset Disposal Relief – How to Claim