Business owners planning an exit will be subject to higher taxes on disposals of qualifying assets after 6 April 2026, as a result of the changes being made to BADR following the Autumn 2024 budget.
What is Business Asset Disposal Relief (BADR)?
BADR — previously known as Entrepreneurs’ Relief— is a valuable Capital Gains Tax (CGT) relief available on the sale of qualifying business assets. There are various conditions to be satisfied to qualify for BADR. The exact conditions vary depending on the nature of the disposal.
BADR can be claimed on disposals of shares in a personal trading company; on the transfer of whole or part of a business; on the disposal of assets on the cessation of a business; or on the disposal of personal assets used in a business. There is effectively a two-year ownership requirement in each case.
The conditions that must be met to qualify for BADR on the disposal of shares in a personal trading company are that, throughout a period of 2 years prior to the disposal:
- The company must be a trading company or the holding company of a trading group of companies;
- The disponer must be an officer or employee of the company (or holding company); and
- The disponer must have owned at least 5% of the ordinary share capital of the company, which (a) enables them to exercise at least 5% of the voting rights; and (b) provides them with either (i) 5% of the distributable profits and 5% of assets available on winding up and / or (ii) 5% of the proceeds on a disposal of the whole ordinary share capital.
BADR rates and the lifetime limit
BADR operates to reduce the rate of CGT paid on the disposal of business assets. BADR has undergone staged rate increases in recent years:
- Pre-5 April 2025 the reduced tax rate was 10%;
- From 6 April 2025 until 5 April 2026 the tax rate is 14%; and
- Post 6 April 2026, the tax rate will be 18%.
There are currently no limits on the amount of times you can claim BADR on the disposal of assets. However, there is a lifetime limit of £1 million of qualifying capital gains. Once that lifetime limit has been utilised, the tax rate applicable on any future disposals will be charged at the normal CGT rate for that individual. Similarly, if the disposal produces capital gains of more than £1m, then only the first £1m is eligible for the reduced rate. The CGT rate on the excess will depend on whether you are a basic rate or higher / additional rate taxpayer.
Anti forestalling rules
Owners seeking to lock in the current 14% rate before 6 April 2026 must be aware of anti‑forestalling rules. Ordinarily, CGT is calculated using the rate applicable on the date an unconditional contract is entered into—not the completion date. Under the new rules, this principle is overridden. Taxpayers are therefore prevented from artificially triggering a disposal before the rate change, by entering into an unconditional contract before 6 April 2026 with a view to completing the disposal after that date.
For disposals on or after 6 April 2026, the 18% rate applies unless the disposal was made pursuant to a pre-6 April 2026 unconditional contract which is an “excluded contract”, meaning:
- The contract wasn’t created to obtain a tax advantage via timing rules
- If the parties are connected (because they are relatives, for example), the contract must be for wholly commercial reasons.
This means that simply signing a contract before the deadline may not guarantee access to the lower rate, even when the contract is unconditional.
If gains are incurred in terms of an excluded contract, it is for the person incurring the capital gain to make a claim to HMRC that the necessary conditions are met. There is however effectively a de minimis threshold and so if the total gains on all such contracts do not exceed £100,000, then it is not necessary to make a claim.
What steps should I take now?
Whilst the impending changes still provide relief to business owners, the value of BADR relief has diminished following the changes introduced in the Autumn 2024 budget. While ensuring qualification for BADR could have saved up to £140,000 of tax before 6 April 2025, that maximum saving will amount to £60,000 from 6 April 2026.
While that is still material, it is likely not so material as to mean that exits which would otherwise happen after 6 April should now be accelerated to the detriment of the bigger picture. There is no doubt that BADR will remain a valuable relief. There are various routes worth considering when planning an exit to ensue utilisation of BADR and other available tax reliefs (like business property relief from inheritance tax for example).
Our advice on planning for business exits remains the same: you should take advice as early as possible.
If you would like to discuss exiting your business or your wider estate planning, please get in touch with our wills and estate planning lawyers.
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Senior Solicitor
