Business Asset Disposal Relief: Current Rates and Rules

Who can qualify for BADR on a sale of shares?

To qualify for BADR on a sale of shares in a company, the company must be a trading company (or the holding company of a trading group) and sellers must have met the following conditions throughout the previous 2 years ending on the date of disposal:

• They must have been an officer (e.g. a director) or employee of the company (or of another company in a trading group).
• They must have held at least 5% of the company’s ordinary shares and been entitled to exercise at least 5% of the voting rights.
• They must have been entitled to at least:
  • 5% of the distributable profits and 5% of the company’s assets available on a winding up; or
  • 5% of the proceeds if all the ordinary shares of the company were sold.

While BADR is commonly claimed on a sale of shares, it may also apply to other disposals, for example disposals of sole trader businesses, partnership interests, shares issued through Enterprise Management Incentive schemes or assets following the cessation of a business. The conditions applying to such disposals differ from the conditions above.

Howard’s experience:

The condition which can often pose an issue for a seller is the condition that they remain an officer or employee of the company (or of another company in the trading group) for 2 years prior to the disposal. Sometimes, sellers unwittingly resign from their position(s) shortly before a disposal (perhaps at the request of a buyer), which could mean that they would be disqualified from claiming BADR. It is therefore recommended that sellers do not resign from such position(s) before the sale of their shares has completed.

What is the relief worth?

While the current BADR rate is now in line with the lower main rate of CGT (both 18%), it is still worth considering what savings may be made if BADR is available and all or part of a gain would, without it, be taxed at the higher main rate of CGT of 24% (given that the BADR rate of 18% would apply to the entire qualifying gain (subject to the lifetime limit).

However, it should also be noted that BADR applies only if it is claimed (i.e., it is not automatically applied). Whether to claim the relief in any particular circumstances should be discussed with your professional advisers.

Key considerations for business owners

With the BADR rate now aligned to the lower main rate of CGT, the relief has moved from being a significant factor in exit planning to a useful but potentially secondary one. In the context of a share disposal, every condition above must be satisfied throughout the 2 years ending on the date of disposal, meaning that if a seller wishes to eventually claim BADR, the conditions must be considered long before a buyer is found. Share classes that carry no economic rights, a funding round that takes a seller below 5%, or a seller who is neither an officer nor an employee are examples of matters which a seller should consider and address well ahead of a disposal, if they intend to claim BADR.

The Chancellor will deliver the Autumn Budget on 28 October 2026. While no changes to CGT or BADR have been announced, business owners contemplating a disposal in the next twelve months may wish to discuss this with their advisers sooner rather than later, particularly if the Budget gives rise to any further changes.