Business Asset Disposal Relief UK (2026): 10% CGT Rate on Business Sales — Conditions, Limits, and Interaction with IHT

Business Asset Disposal Relief (BADR) — formerly known as Entrepreneurs' Relief (ER) — is a Capital Gains Tax relief that reduces the CGT rate on qualifying disposals to 10%, compared to the standard rates of 18% (basic rate taxpayer) or 24% (higher/additional rate taxpayer) for most assets. BADR is available under TCGA 1992 ss.169H-169S: (1) QUALIFYING DISPOSALS FOR BADR: the main qualifying disposal types are: (a) DISPOSAL OF ALL OR PART OF A TRADING BUSINESS: a sole trader or partnership disposing of their business (or their share of it) qualifies. A 'trading business' must be a going concern carrying on commercial activities — not mainly investment or property letting; (b) DISPOSAL OF ASSETS FOLLOWING CESSATION OF A TRADING BUSINESS: if a sole trader ceases trading, they can sell business assets within 3 years of cessation and still claim BADR; (c) DISPOSAL OF SHARES IN A PERSONAL COMPANY: shares in a company qualify if, throughout the 2 years ending on the date of disposal, the company has been a trading company (or holding company of a trading group) AND the individual: (i) holds at least 5% of the ordinary share capital AND 5% of the voting rights; (ii) is an officer (director or company secretary) or employee of the company; (2) THE 2-YEAR QUALIFYING PERIOD: the conditions above must have been met throughout the 2 years immediately before the disposal. If the shareholding falls below 5%, or the company becomes non-trading (e.g. by acquiring significant investment property), in the 2 years before disposal, BADR is lost for that period; (3) THE £1 MILLION LIFETIME LIMIT (2020 ONWARDS): BADR is subject to a lifetime cap of £1 million of qualifying gains. The first £1 million of total qualifying gains across all disposals in a lifetime attract the 10% rate. Gains above the £1 million lifetime limit are charged at the standard CGT rate. The lifetime limit was reduced from £10 million to £1 million in Budget 2020 — a very significant reduction. Gains already realised and reported before the change are counted against the lifetime limit; (4) ASSOCIATED DISPOSALS: when a business is sold, assets owned personally by the business owner but used in the business (e.g. a commercial property personally owned but occupied by the company) can qualify as 'associated disposals' alongside the share disposal — subject to conditions including: the asset must have been in qualifying use for 3 years ending on the disposal; a minimum partnership/company stake must exist; the disposal must occur in connection with a withdrawal from the business.

The Business Asset Disposal Relief rate and rules have been subject to repeated Budget changes in recent years: (1) CURRENT RATE (2026-27): the BADR CGT rate is 10% on qualifying gains up to the £1 million lifetime limit. This is charged on top of the individual's income for the year to determine the rate — for most business owners selling a company, the gain will push them into higher-rate territory, but BADR fixes the rate at 10% regardless; (2) AUTUMN BUDGET 2024 CHANGES: the 2024 Autumn Budget made two changes relevant to BADR: (a) BADR rate rise from April 2026: the BADR rate will increase from 10% to 14% for disposals on or after 6 April 2026. This was announced in Budget 2024 and takes effect for the 2026-27 tax year. From 6 April 2026: BADR gains up to £1m = 14% (not 10%); (b) INVESTORS' RELIEF rate: Investors' Relief (a related CGT relief for external investors in unlisted companies) also increased. The 10% rate for BADR applied for tax years up to 5 April 2026; the 14% rate applies from 6 April 2026; (3) CGT RATES FOR NON-BADR GAINS (2025-26 AND 2026-27): following the October 2024 Autumn Budget, the standard CGT rates were increased: 18% (basic rate taxpayer; previously 10%); 24% (higher/additional rate; previously 20%). Residential property: 18%/24% (unchanged). BADR at 14% is still significantly below the standard 24% CGT rate for higher-rate taxpayers; (4) PREVIOUS RATE HISTORY: BADR started at 10% when introduced in 2008. In Budget 2020, the lifetime limit was reduced from £10 million to £1 million. The base rate remained at 10% until the 2024 Budget increase to 14% from April 2026; (5) PLANNING NOTE: for business owners planning a sale, the April 2026 change means: sales completed before 6 April 2026 attract 10% BADR; sales from 6 April 2026 attract 14% BADR. Many business owners accelerated sales to secure the 10% rate before the deadline.

Understanding how BADR interacts with death requires understanding two distinct CGT events: (1) DEATH ITSELF — NO CGT, NO BADR: a person's death is not a disposal for CGT purposes. Under TCGA 1992 s.62, the deceased's assets pass to the personal representatives (PRs) at the date-of-death market value (probate value). There is no CGT charge at death and therefore no BADR claim to make at death. The pre-death gain is extinguished — CGT uplift (or rebasing) means beneficiaries and PRs start with a CGT base cost equal to the probate value; (2) PERSONAL REPRESENTATIVES SELLING BUSINESS ASSETS AFTER DEATH: if the PRs sell qualifying business assets during estate administration (rather than assenting them to beneficiaries), the PRs are liable for CGT on any gain above the probate value. However, BADR is NOT available to personal representatives — they cannot claim the 10%/14% BADR rate. The PR rate is 20% for non-residential assets (24% for residential). The CGT rebasing on death generally means any pre-death gain is not taxed — only the gain from probate value to sale proceeds is relevant; (3) BENEFICIARY SELLING AFTER INHERITING: if a beneficiary inherits qualifying business assets and then sells them, BADR may in principle be available if the beneficiary independently meets the qualifying conditions (5% shareholding; officer/employee; 2-year period). The beneficiary's 2-year clock runs from when they became an officer/employee/shareholder — not from when they inherited. Inheriting shares does not automatically satisfy the 2-year condition; (4) THE OPTIMAL OUTCOME — BPR PLUS CGT REBASING ON DEATH: for business owners whose company qualifies for Business Property Relief (100% BPR — IHTA 1984 s.105), holding shares until death achieves the best possible outcome: (a) IHT: 100% BPR (or 50% for AIM shares from April 2026) — IHT is fully or substantially mitigated; (b) CGT: TCGA 1992 s.62 rebasing on death — beneficiaries inherit at probate value; the entire pre-death gain is extinguished; no BADR needed because there is no CGT; (c) Result: the company passes with no IHT and no CGT on pre-death appreciation. This is significantly better than a lifetime sale where BADR at 14% would apply (still a 14% tax on the gain); (5) WHEN TO SELL DURING LIFETIME: if BPR is not available (e.g. the company is investment-heavy; or the owner needs the proceeds during life), a lifetime sale with BADR at 14% may be preferable to holding and paying full IHT on death without BPR.

The £1 million lifetime limit for BADR is a cumulative cap across all qualifying disposals in a person's lifetime: (1) HOW THE LIFETIME LIMIT WORKS: every time BADR is claimed on a qualifying disposal, the gains used against the relief reduce the remaining lifetime allowance. Example: (a) Tax year 2020-21: sole trader sells business; qualifying BADR gain = £600,000. BADR at 10% = £60,000 CGT. Remaining lifetime limit: £1,000,000 − £600,000 = £400,000; (b) Tax year 2024-25: same person sells shares in a personal company; qualifying BADR gain = £500,000. BADR available on £400,000 (remaining lifetime limit) at 10% = £40,000 CGT; remainder £100,000 at standard CGT rate (24%) = £24,000 CGT; (2) PRIOR HISTORY OF LIFETIME LIMIT USAGE: gains used before the limit was reduced from £10m to £1m in Budget 2020 count against the new £1m limit. However, HMRC issued guidance that only the amount that would have qualified at the old rules up to £10m counts, and the £1m cap applies cumulatively from the individual's first claim. Detailed calculations are required for those who made substantial claims pre-2020; (3) REPORTING AND TRACKING: BADR is claimed on the individual's Self-Assessment tax return (SA100; supplementary pages SA108 for capital gains). HMRC will track lifetime BADR usage through the individual's tax records. You must keep records of all previous BADR claims; (4) MULTIPLE BUSINESS DISPOSALS: an individual can make multiple qualifying BADR claims across different years — all subject to the cumulative £1m lifetime cap. This is particularly relevant for serial entrepreneurs who sell and start multiple businesses; (5) COUPLES AND BADR: each individual has their own separate £1m lifetime BADR allowance. Spouses and civil partners cannot share or transfer BADR allowances. For a couple each owning qualifying shares, each could in principle claim up to £1m BADR on qualifying gains; (6) ASSOCIATED DISPOSALS COUNT TOWARDS LIMIT: gains from associated disposals (personally-owned business assets used in the company) also count against and reduce the lifetime limit.

For business owners, the interaction between BADR, Business Property Relief (BPR), CGT uplift on death, and general estate planning creates significant planning opportunities — and the optimal strategy depends heavily on the specific circumstances: (1) THE HOLD-TO-DEATH STRATEGY (FOR BPR-QUALIFYING BUSINESSES): if the business qualifies for 100% BPR (IHTA 1984 s.105(1)(bb) — unquoted trading company; 2+ years holding): (a) Hold shares until death: IHT = £0 on BPR-qualifying shares (below £1m combined BPR/APR cap from Finance Act 2024); CGT = £0 on pre-death gain (TCGA 1992 s.62 rebasing); (b) This is the optimal outcome — no IHT and no CGT. BADR is irrelevant because the CGT uplift makes the entire pre-death gain tax-free; (c) The cost of holding: if the business is sold after death by PRs or beneficiaries, only the gain above probate value is taxable. A business worth £2m at date of sale, valued at £2m at death = no CGT regardless; (2) THE LIFETIME SALE STRATEGY (IF BPR NOT AVAILABLE OR PROCEEDS NEEDED): (a) BADR at 14% (from April 2026) applies to qualifying gains up to £1m lifetime; (b) Consider gifts of shares: a gift of qualifying shares to a family member is a disposal at market value — BADR can apply. Holdover relief (TCGA 1992 s.165) can defer the CGT to the donee. If both BADR and holdover are possible, the choice depends on whether the donee will sell soon (in which case claiming BADR now is better) or hold long term (holdover defers the CGT, but at the donee's own rate when they sell); (3) BUSINESS WILL PLANNING: a will should specifically address the business shareholding: (a) business succession: who inherits the shares; whether a cross-option agreement exists with co-shareholders; (b) BPR: ensure the will directs qualifying shares to non-exempt beneficiaries (not spouse/civil partner) to maximise use of BPR — a gift to spouse is IHT-exempt anyway, so BPR does not create an additional saving; (c) shareholders' agreement: the will should be consistent with any shareholders' agreement buyout provisions on death; (d) LPA: a Property & Financial Affairs LPA is essential to manage the business shareholding if the owner loses mental capacity; (4) TIMING A SALE: if a sale during lifetime is planned: (a) Ensure the 2-year qualifying period has been met; (b) Ensure the company is trading (not investment-heavy) at disposal; (c) Consider whether gains can be spread across tax years to use AEA (£3,000 per year) and two BADR lifetimes for a couple; (5) THE BADR RATE CHANGE APRIL 2026: for sales from 6 April 2026, BADR is 14% (not 10%). Where possible and commercially sensible, sales before 6 April 2026 secured the 10% rate.