Business Asset Disposal Relief (BADR), formerly known as Entrepreneurs Relief, is a Capital Gains Tax relief that reduces the rate of tax on qualifying gains when you sell or close a business. For many self-employed people and business owners across Kent, it can mean paying significantly less CGT on the proceeds of a lifetime’s work.
The rules changed in the October 2024 Budget, so if you are planning a disposal, it is essential to understand the current rates and conditions before you act.
Quick Answer
BADR reduces the CGT rate on qualifying business disposals to 14% from April 2025 (rising to 18% from April 2026), compared to the standard rate of 24% for higher rate taxpayers on residential property or 20% on other assets. The lifetime limit is £1 million of qualifying gains. You must meet specific conditions relating to your involvement in the business for at least two years before disposal.
What Are the Current BADR Rates?
Following the Autumn Budget on 30 October 2024, the BADR rate increased:
| Period | BADR rate |
|---|---|
| Before 30 October 2024 | 10% |
| 30 October 2024 to 5 April 2025 | 14% |
| From 6 April 2025 onwards | 14% |
| From 6 April 2026 onwards | 18% |
The rate is still significantly lower than the standard CGT rate of 20% on business assets for higher rate taxpayers.
The lifetime allowance remains £1 million of qualifying gains.
What Qualifies for BADR?
BADR applies to gains on the disposal of:
Your Own Business
If you close down or sell your business, gains on qualifying business assets may be eligible. The conditions include:
- You must be a sole trader or partner in a business partnership
- You must have owned the business for at least 2 years ending on the date of disposal or cessation
- The business must be a trading business (not primarily an investment business)
Shares in a Personal Company
If you own shares in your employer company, BADR may apply if:
- You have held the shares for at least 2 years
- The company is a trading company or the holding company of a trading group
- You are an employee or officer of the company
- You own at least 5% of the ordinary share capital and 5% of voting rights
- You are entitled to at least 5% of distributable profits and net assets on a winding up (from April 2019)
Assets Used in a Business
If you own assets that you have let to your business (such as a property used in the trade), gains on those assets may also qualify when the business is disposed of, subject to conditions.
What Does Not Qualify?
- Investment properties
- Shares in companies you do not work for
- Buy-to-let property portfolios (these are not trading businesses)
- Furnished holiday lets (FHL status has been abolished from April 2025)
- Assets sold independently of the business, where the business continues
The Two-Year Qualifying Period
The qualifying conditions must have been met for at least 2 continuous years ending on the date of disposal (or cessation, if earlier). This means:
- If you are selling your business, the 2-year clock runs to the date of sale
- If your company is being wound up, the 2-year period runs to the date the company ceased trading
- If you lose your 5% shareholding (through share dilution or sale), there are special rules that may preserve the relief
Timing a disposal around the 2-year anniversary can be critical. A few weeks can make the difference between qualifying and not.
Planning Considerations
Given that the BADR rate is rising to 18% from April 2026, anyone planning a business disposal in the near term should consider whether bringing the timing forward makes sense. However, this must be balanced against commercial and other tax considerations. Decisions made purely for tax reasons can sometimes create unexpected consequences.
It is also worth noting that the £1 million lifetime limit is cumulative. If you have previously claimed BADR, the amount claimed reduces what is available for future disposals.
FAQs
I am closing my sole trader business after 15 years. Will I automatically qualify for BADR? Not automatically. You need to meet the conditions on the date of cessation or disposal. In your case, the 2-year ownership period is clearly satisfied, but HMRC will also look at whether the business was genuinely trading. If your activities have wound down to a passive level before closure, this could be relevant.
My company issued new shares to investors last year and diluted my holding below 5%. Have I lost BADR? Not necessarily. There is a provision allowing you to make a BADR election at the point your holding drops below 5%, treating a deemed disposal at that point. This locks in whatever gain exists at that date at the qualifying rate. You would need to have acted at the time, so this is worth discussing urgently with a specialist if it applies.
I own a buy-to-let property as a sole trader. Does that qualify for BADR? No. Buy-to-let property is treated as an investment activity, not a trading business, and does not qualify for BADR regardless of how many properties you own or how actively you manage them.
Can I claim BADR on goodwill when I sell my business? Goodwill is a qualifying asset for BADR in most sole trader and partnership disposals. However, there are restrictions on goodwill in certain related party transactions (for example, where the business is sold to a company in which you have an interest). This requires careful structuring.
The BADR rate is going up in April 2026. Should I rush to sell before then? This is a commercial decision as much as a tax one. The rate increase from 14% to 18% is meaningful on large gains, but rushing a disposal could result in a worse commercial outcome. A tax specialist can model the numbers so you can make an informed decision.
Maximise Your BADR Claim
Our principal tax adviser is an ACCA and ATT qualified tax specialist and HMRC Registered Agent with over 25 years of personal tax experience, including BADR claims, business disposals, and CGT planning. Kent Tax Specialists advises clients across Gravesend, Dartford, Maidstone, Medway, Sevenoaks, Tonbridge, Tunbridge Wells and the wider Kent area. Contact us today well before any planned disposal.
Also see: Capital Gains Tax in Maidstone | Capital Gains Tax in Tonbridge | Capital Gains Tax in Dartford
