Business Asset Disposal Relief 2026: New Rates and Rules Explained

What business owners need to know after the changes to Capital Gains Tax

By Carolyn Burchell  |  Correct as of August 2026

If you have spent years building a business, the day you sell it should feel like a reward. Increasingly, it also comes with a bigger tax bill than you were expecting. Capital Gains Tax (CGT) on business disposals has moved twice in the last eighteen months, and the most recent change took effect on 6 April 2026.

In this post we cover what actually changed, who still qualifies for Business Asset Disposal Relief, and what the new rate means in real terms on a typical sale. A second post picks up the detail on goodwill, property, gifts between family, and planning around an exit, since there is too much ground to cover well in one sitting.

What Changed on 6 April 2026, and What Stayed the Same

Two separate reforms to Capital Gains Tax have been running alongside each other, and it is easy to confuse them.

The main rates of Capital Gains Tax, the ones that apply to most gains including shares, property, and other assets, were unified back on 30 October 2024 at 18% for gains within your basic rate band and 24% above it. Those rates have not moved since and remain 18% and 24% for 2026/27. The annual exempt amount, the slice of gains you can make each year before any tax is due, is also unchanged at £3,000 per person.

What did change on 6 April 2026 is Business Asset Disposal Relief, known as BADR. This reduced rate on the sale of a trading business has now risen to 18%, up from 14% in 2025/26 and 10% before that. Investors’ Relief, a similar but less commonly used relief, moved in step and now also sits at 18%.

In practical terms, Business Asset Disposal Relief still beats the standard higher rate charge, but the gap has narrowed considerably in a short space of time. For anyone weighing up a sale, that narrowing gap is the headline.

Business Asset Disposal Relief: The New Rate and Who Qualifies

Who Qualifies

Business Asset Disposal Relief applies to the sale of a sole trader business, a share in a partnership, or shares in your own trading company. The word trading matters more than it might seem, and it applies whatever structure you use. A company must be a genuinely trading company, not simply any company, and a partnership share only qualifies if the partnership itself is trading rather than, for example, simply holding investments between the partners. In either case, if the business carries on investment activity to a substantial degree alongside its trading activity, BADR may be reduced proportionately.

The Shareholding and Ownership Conditions

To qualify for BADR on a share sale, you also generally need to have held the shares for at least two years, been an officer or employee of the company throughout that period and held at least 5% of the ordinary share capital and voting rights. On top of that you need to meet one of two further tests: either being entitled to at least 5% of the company’s distributable profits and assets on a winding up or being entitled to at least 5% of the proceeds if the whole of the ordinary share capital were sold. Most shareholders qualify through the first route, but the second may matter where share rights are structured unevenly.

Timing Traps: Resignation and Incorporation

You need to remain an officer or employee right up to the day of the share sale itself, not resign the day before to tidy things up, since HMRC has successfully denied relief in the past on exactly that kind of timing. If you are leaving the business as part of the deal, resigning and selling on the same day is fine, but resigning first and completing the sale afterward is not.

If you incorporate a business, you previously ran as a sole trader or partnership and then sell your shares shortly afterward, the time you ran the business before incorporation generally counts towards the two-year holding period for the share sale, provided Incorporation Relief could have applied to the transfer, even if you do not actually claim it. This may matter if you sell soon after incorporating rather than waiting a further two years from scratch.

The Lifetime Limit

Business Asset Disposal Relief has a lifetime limit of £1 million of qualifying gains. That limit is cumulative across every claim you have ever made, not an annual allowance, so if you have used part of it on a previous business sale, only the remainder is available now. See GOV.UK for how to claim.

BADR was called Entrepreneurs’ Relief until April 2020, and plenty of business owners and advisers still refer to it that way out of habit. The name change came alongside a much bigger shift in the lifetime limit itself. It started at £1 million when the relief was introduced in 2008, rose in stages to £2 million, then £5 million, then £10 million by 2011, and stayed there for nearly a decade, before being cut back down to £1 million in March 2020, where it has remained since.

From 6 April 2026, qualifying gains within the £1 million limit are taxed at 18% rather than the previous 14%. There are some transitional rules for contracts that were unconditionally agreed before that date, but the conditions are strict, particularly where the buyer and seller are connected, so this is not something to assume applies to your situation without checking.

Personally Owned Assets: Associated Disposals

One area people often overlook is personally owned assets used by the business, most commonly premises you own personally but let your company use. These are not automatically covered by BADR just because the business itself is being sold. They only qualify as what HM Revenue and Customs (HMRC) calls an associated disposal if several conditions are met together. The asset generally needs to have been in use by the business throughout the two years before the disposal, or before the business ceased if that happened first, and if you acquired the asset on or after 13 June 2016, you also need to have owned it for at least three years.

The sale itself has to be sufficiently connected with, and form part of, your withdrawal from the business, though it does not have to complete on the same day. As a practical guide, HMRC generally accepts the timing where the asset is disposed of within one year of the business ceasing, or within three years if it has not been used for anything else in the meantime. The relief may also be restricted where the company paid you rent to use the asset, broadly in proportion to how that rent compared with a full market rent.

Other Categories Worth Knowing About

A handful of other categories and provisions exist alongside the core rules above. Trusts can claim BADR in some circumstances, most usefully through a life interest trust with a qualifying beneficiary, though discretionary trusts and deceased estates cannot claim at all. Joint venture interests have their own separate provision for establishing trading status. Investors’ Relief is a separate relief for investor shareholders who are not officers or employees, with its own distinct lifetime limit. EMI share options have their own carve-out from the normal 5% shareholding test, and there is a specific election available to protect BADR for shareholders whose stake falls below 5% because the company raises external investment.

What This Means in Real Money on a £500,000 Taxable Gain

Numbers make this easier to picture than percentages alone when working out what Business Asset Disposal Relief is worth in practice. Take a business owner with a qualifying gain of £500,000, once losses and the annual exempt amount have been accounted for, and who has not previously used any of their BADR allowance.

The move to 18% costs this business owner an extra £20,000 compared with selling a year earlier under the old rate. BADR is still beneficial, it saves £30,000 against the standard higher rate on the same sale, albeit less than in previous years.

Frequently asked questions

What to Do Next

This covers the headline changes and the core Business Asset Disposal Relief conditions, but a business sale rarely stops there. If your exit also involves goodwill, property, gifts to family, or restructuring beforehand, our companion post, Capital Gains Tax on Business Disposals: Assets, Gifts, and Planning Around a Sale, covers all of that in detail.

A sale also sits downstream of decisions you may have made years earlier, how you structured the business and how you paid yourself along the way. Our guides on Sole Trader or Limited Company and Salary vs Dividends for Company Directors cover those earlier decisions in more depth.

We work with business owners at every stage of this, from early structuring through to the sale itself. If a sale or succession is somewhere on your horizon, book a discovery call and we will talk through what it means for you specifically.

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