Business Asset Disposal Relief UK

Business Asset Disposal Relief (BADR) UK, formerly known as Entrepreneurs' Relief, provides a reduced CGT rate on lifetime qualifying gains up to £1m for individuals disposing of qualifying business assets. The lifetime limit was cut from £10m to £1m in March 2020 by Finance Act 2020. The BADR CGT rate has been increased in two stages under Finance Act 2024: 14% from April 2025 (up from 10%) and 18% from April 2026. HMRC HS275 guidance and section 169I of the Taxation of Chargeable Gains Act 1992 set out the qualifying conditions, including the two-year ownership and trade requirements.

BADR provides a reduced CGT rate on qualifying business disposals

Business Asset Disposal Relief provides a reduced CGT rate on lifetime qualifying gains up to £1m for individuals disposing of qualifying business assets, with the rate set at 14% from April 2025 and scheduled to rise to 18% from April 2026 under Finance Act 2024. The relief operates by taxing the qualifying gain at the reduced rate rather than the standard CGT rates of 18% (basic rate) or 24% (higher rate) under the Finance Act 2024 framework. The mechanism is set out in part 5 of the Taxation of Chargeable Gains Act 1992 and operated through self-assessment using a BADR claim in the return for the year of disposal.

The £1m lifetime limit was reduced from £10m by Finance Act 2020 with effect from 11 March 2020, removing the most valuable feature of the previous Entrepreneurs' Relief framework. The change was projected by the OBR to materially reduce the cost of the relief while preserving the policy intent of incentivising entrepreneurial investment in UK businesses.

The two-year qualifying period covers ownership and trade activity

The two-year qualifying period requires the individual to have owned the business or qualifying shares for at least two years before disposal, and (for personal company shares) to have been an officer or employee of the company throughout the period. The qualifying conditions are set out in section 169I of the Taxation of Chargeable Gains Act 1992 and HMRC HS275 guidance. For a sole trader or partner disposing of business assets, the two-year period covers ownership and active trading. For a personal company shareholder, the two-year period covers shareholding, officer/employee status, and the company carrying on a qualifying trade.

The two-year period was extended from one year by Finance Act 2019, with the change effective for disposals from 6 April 2019. Disposals before that date used the prior one-year qualifying period. HMRC has published worked examples covering the transitional position and the specific calculation rules for partial qualifying periods.

Personal company shareholders need a minimum 5% holding

For BADR on share disposals, the individual must have held at least 5% of the company's ordinary share capital and 5% of the voting rights for the two-year qualifying period, with additional tests on entitlement to dividends and asset distribution introduced by Finance Act 2018. The Finance Act 2018 amendments tightened the qualifying conditions in response to perceived avoidance through alphabet share structures that diluted the economic entitlement of qualifying shareholders without reducing the 5% headline holding. The additional tests require the shares to deliver at least 5% of the economic interest in the company on a fair-value basis.

The 5% test is applied to ordinary share capital, with the company's articles and shareholder agreements determining how the test interacts with the underlying voting and economic rights. HMRC has published detailed guidance on the calculation for companies with multiple classes of shares, deferred shares, or growth shares. Each class needs to be assessed separately against the qualifying conditions.

The £1m lifetime limit applies cumulatively across all qualifying disposals

The £1m lifetime BADR limit applies cumulatively across all qualifying disposals by an individual, with HMRC tracking the cumulative use against the lifetime cap. Disposals before the March 2020 reduction (which used the £10m limit) count against the cumulative limit only up to the prior £10m amount actually used. An individual who used £6m of the £10m limit before March 2020 has zero remaining BADR capacity under the £1m post-reform limit, since the £6m exceeds the new £1m cap.

The cumulative tracking is operated through self-assessment and HMRC's records. Each qualifying disposal is claimed on the relevant year's return, with the lifetime usage updated accordingly. The mechanism prevents individuals from accessing BADR multiple times on serial disposals once the £1m cap is reached.

Joint ownership splits the lifetime limit pro-rata

Where business assets are jointly owned by spouses or business partners, each individual has a separate £1m lifetime limit, allowing the household to claim BADR on up to £2m of qualifying gains for spouses owning the business 50:50. The mechanism is structurally favourable for family-owned businesses, where transferring partial ownership of the business to a spouse (subject to genuine commercial substance) can effectively double the BADR limit. The transfer must meet the standard qualifying conditions, including the two-year ownership period for the recipient before any disposal that aims to use the recipient's BADR allowance.

HMRC has tightened compliance scrutiny on spousal transfers undertaken close to a planned disposal, with anti-avoidance provisions targeting arrangements that lack commercial substance. The General Anti-Abuse Rule (GAAR) introduced by Finance Act 2013 is the backstop for arrangements judged abusive, alongside the specific BADR qualifying conditions.

HMRC data shows 44,000 BADR claimants in the most recent reported tax year

HMRC BADR statistics show 44,000 individual claimants in the most recent reported tax year, with the average gain claimed at a level reflecting the £1m cap rather than the prior £10m cap. The data reflects the structural change in the relief population since the March 2020 limit reduction. Pre-reform, BADR was used by a smaller number of high-value claimants on large business disposals. Post-reform, the population is broader but with smaller average gains, focused on owner-managed businesses with disposal values closer to the £1m cap.

The OBR has tracked the fiscal cost of BADR through its annual costings, with the post-reform cost materially lower than the prior cost. The Treasury Committee has heard evidence on the operational impact of the reform, with concerns raised about its effect on the UK entrepreneurial environment, particularly for technology and life sciences exits where exit values frequently exceed the £1m cap.

BADR interacts with Investors' Relief and Business Investment Relief

BADR sits alongside Investors' Relief (a 10% CGT rate on qualifying investments in external company shareholdings, separate £1m lifetime limit) and Business Investment Relief (separate relief for remittance basis non-dom investments under the prior regime), with the three reliefs operating under separate rules. Investors' Relief applies to passive shareholdings (where the investor is not an officer or employee of the company), providing a route to the 10% rate for external investors that BADR does not cover. The relief was introduced by Finance Act 2016 and has applied through to the recent reform window.

Following the April 2025 non-dom reform, Business Investment Relief has been substantially modified as part of the broader changes to the remittance basis. The Investors' Relief rate has also been raised by Finance Act 2024 in parallel with the BADR rate increases, maintaining alignment between the two reliefs.

What is Business Asset Disposal Relief UK?

Business Asset Disposal Relief is the post-2020 name for what was previously Entrepreneurs' Relief. It provides a reduced CGT rate on lifetime qualifying gains up to £1m for individuals disposing of qualifying business assets. The rate is 14% from April 2025 and rises to 18% from April 2026 under Finance Act 2024.

What happened to entrepreneurs' relief?

Entrepreneurs' Relief was renamed Business Asset Disposal Relief in March 2020 under Finance Act 2020. The lifetime limit was simultaneously cut from £10m to £1m. The relief continues to operate under the new name with the reduced limit and a CGT rate that is rising in stages under Finance Act 2024.

What is the 10 CGT business sale UK status now?

The 10% BADR rate ended in April 2025. From April 2025, the BADR rate is 14%, rising to 18% from April 2026 under Finance Act 2024. The 10% rate continues to apply to disposals before 6 April 2025, subject to standard timing rules.

How does BADR qualifying ownership work?

The individual must have owned the business or qualifying shares for at least two years before disposal, and (for personal company shares) been an officer or employee of the company throughout the period with a minimum 5% holding. The qualifying conditions are in section 169I of the Taxation of Chargeable Gains Act 1992.

Can spouses each claim their own BADR limit?

Yes. Each individual has a separate £1m lifetime limit. Where business assets are jointly owned by spouses or business partners, each individual can claim BADR on their share up to their individual £1m cap, doubling the effective relief for 50:50 owners. The recipient spouse must meet the qualifying conditions on their own holding.

How is BADR claimed?

BADR is claimed through self-assessment by completing the BADR section of the capital gains pages in the return for the year of disposal. HMRC tracks cumulative use against the £1m lifetime limit, and the claim must be filed within 12 months from 31 January following the tax year of the disposal.

How we verified this

This article draws on the following primary UK sources:

• HMRC HS275 Business Asset Disposal Relief / Entrepreneurs' Relief guidance
• HMRC BADR statistics
• Finance Act 2020 (legislation.gov.uk) for the limit reduction
• Finance Act 2024 (legislation.gov.uk) for the rate increases
• Taxation of Chargeable Gains Act 1992 (legislation.gov.uk) section 169I and part 5
• Finance Act 2018 (legislation.gov.uk) for the alphabet share amendments
• Finance Act 2019 (legislation.gov.uk) for the two-year qualifying period

No secondary aggregators, no press releases from commercial providers, and no statistics without a named government or regulatory source were used.