The relief that rewards business owners on exit — a reduced Capital Gains Tax rate on qualifying disposals, capped at a £1 million lifetime allowance.
When you spend years building a business, the day you sell it should not be the day the tax system takes a quarter of your reward. Business Asset Disposal Relief (BADR) exists to soften that exit, charging a reduced Capital Gains Tax rate on the gain you make when you dispose of a qualifying business. But the relief has been steadily trimmed: the lifetime limit fell from £10 million to £1 million in 2020, and the rate is now climbing from the old 10% towards 18% by April 2026.
BADR does not exempt a gain from tax — it taxes it at a lower rate. Without the relief, a higher-rate taxpayer pays Capital Gains Tax at 24% on most business gains. With BADR, the qualifying slice is taxed at just 14% in 2025/26. The saving is real but shrinking: at the old 10% rate the gap was 14 percentage points, and once the rate reaches 18% in April 2026 the advantage narrows further.
The £1 million cap is a lifetime allowance, not an annual or per-sale one. Once you have claimed relief on £1 million of gains across your career, any further qualifying gains are taxed at the standard rates.
The relief covers three broad situations. First, a sole trader or partner selling all or part of a trading business they have owned for at least two years. Second, an individual disposing of shares in their personal trading company — typically a limited company — where they have held at least 5% of the shares and voting rights for two years and are a director or employee. Third, certain "associated disposals" of assets used in the business when the business itself is sold.
Investment companies, buy-to-let portfolios held as investments, and shares below the 5% threshold generally do not qualify.
Take Priya, who has run her consultancy through a limited company for eight years, holding 100% of the shares. In 2025/26 she sells the company, realising a gain of £900,000 after costs. As a higher-rate taxpayer, here is the difference BADR makes.
| Item | Without BADR | With BADR (2025/26) |
|---|---|---|
| Qualifying gain | £900,000 | £900,000 |
| Less annual exempt amount | (£3,000) | (£3,000) |
| Taxable gain | £897,000 | £897,000 |
| Rate applied | 24% | 14% |
| Capital Gains Tax | £215,280 | £125,580 |
BADR saves Priya £89,700. Because her gain is under the £1 million lifetime limit, the whole taxable amount benefits from the 14% rate. Model your own figures with the Capital Gains Tax calculator before committing to a sale date.
The rising rate makes the date of disposal unusually important. A sale completing before 6 April 2026 is taxed at 14%; the same sale a day later is taxed at 18%. On a £1 million gain that timing is worth roughly £40,000. The two-year qualifying period also bites: if you have only recently crossed the 5% shareholding threshold or started trading, selling too soon can disqualify the gain entirely.
Business Asset Disposal Relief is now a smaller prize than it once was, but on a seven-figure exit the rate difference still runs to tens of thousands. The clock — both the two-year qualifying period and the April rate rise — is what decides whether you keep it.
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