What Is Business Asset Disposal Relief in 2025/26 and How Much Tax Do You Pay When Selling a Business?

If you are planning to sell your business, shares in your company, or close down a trade in 2025 or 2026, one of the most important tax questions is:

What is Business Asset Disposal Relief (BADR), and how much Capital Gains Tax will I pay?

Business Asset Disposal Relief can significantly reduce the tax payable when you dispose of qualifying business assets. However, the rules have changed — and the tax rate has increased.

From 6 April 2025, the rate rose to 14%.
From 6 April 2026, it will rise again to 18%.

If you are considering an exit, timing now makes a material financial difference.

This guide explains exactly how Business Asset Disposal Relief works in 2025/26, who qualifies, how much tax you will pay, and what to consider before selling your business.

What Is Business Asset Disposal Relief?

Business Asset Disposal Relief (formerly Entrepreneurs’ Relief) is a UK Capital Gains Tax relief that reduces the rate of tax you pay when selling qualifying business assets.

Normally, Capital Gains Tax on business disposals can be charged at higher rates. BADR provides a reduced rate on qualifying gains, making it particularly valuable for business owners exiting their companies.

It can apply when you:

• Sell all or part of your sole trade
• Sell shares in your personal company
• Dispose of assets after closing your business
• Sell your interest in a partnership

The relief is intended to support entrepreneurship by reducing the tax burden when business owners realise the value they have built.

What Is the BADR Tax Rate in 2025/26?

The Capital Gains Tax rate under Business Asset Disposal Relief is:

• 14% for disposals on/after 6 April 2025 (2025/26)
• 18% for disposals on/after 6 April 2026 (2026/27 onwards)

Before 6 April 2025, the rate was 10% .

This means the cost of selling a qualifying business has increased significantly compared to previous years — and will increase again from April 2026.

For business owners planning an exit, this change can mean tens of thousands of pounds in additional tax.

How Much Capital Gains Tax Will You Pay When Selling Your Business?

The amount of tax you pay depends on:

• The size of your gain
• Whether BADR applies
• Whether you have already used your lifetime BADR limit
• The timing of the disposal

Example: £500,000 Gain

If you sell your business and make a qualifying gain of £500,000:

Compared to the previous 10% rate:

• Selling in 2025/26 costs £20,000 more

• Selling from April 2026 costs £40,000 more

On larger gains, the difference is even more substantial.

For example, on a £1 million qualifying gain:

• 14% = £140,000 tax
• 18% = £180,000 tax

That is a £40,000 timing difference.

Who Qualifies for Business Asset Disposal Relief?

Not all business sales qualify automatically. Strict conditions must be met.

If You Are a Sole Trader or Business Partner

You must:

• Have owned the business for at least 2 years before disposal
• Be a sole trader or partner in a trading business

If you close your business instead of selling it, you must dispose of business assets within three years to qualify .

The business must be genuinely trading — investment businesses generally do not qualify.

If You Are Selling Shares in a Limited Company

To qualify for BADR when selling company shares, you must:

• Be an employee or office holder (e.g. director) of the company
• Hold at least 5% of the ordinary share capital
• Hold at least 5% of the voting rights
• Be entitled to at least 5% of profits available for distribution and assets on winding up (or disposal proceeds)
• Have met these conditions for at least 2 years prior to sale

In addition, the company must be a trading company or the holding company of a trading group.

Failing any of these tests can disqualify you from relief.

What Is the Lifetime Limit for BADR?

Business Asset Disposal Relief is subject to a £1 million lifetime limit.

This means:

• You can claim BADR on qualifying gains up to £1 million over your lifetime.
• Gains above that limit are taxed at normal Capital Gains Tax rates.

If you have already used some of your lifetime allowance in the past, the remaining balance is all that is available.

Careful planning is required if you are considering phased disposals or multiple exits.

Does Timing of Sale Matter?

Yes — timing now has a direct tax impact.

Because the BADR rate increases from:

• 14% in 2025/26
  to
• 18% from 6 April 2026

accelerating a planned sale could result in meaningful savings.

However, you must already satisfy the 2-year ownership requirement before disposal .

If you are restructuring shareholdings or appointing directors to meet eligibility conditions, you cannot simply do this immediately before sale.

Advance planning is essential.

What Happens If You Do Not Qualify for BADR?

If BADR does not apply, your gain will be taxed at standard Capital Gains Tax rates.

Depending on your total income and gains in the year, this may result in a significantly higher tax liability.

This is why reviewing eligibility well before agreeing heads of terms is critical.

Common Business Asset Disposal Relief Mistakes

We regularly see business owners lose relief because of:

1. Falling Below the 5% Shareholding Test

Issuing new shares before sale can dilute a shareholder below the 5% threshold.

2. Failing the Trading Test

If a company has substantial investment activities, it may fail the “trading company” requirement.

3. Not Being an Office Holder

Simply being a shareholder is not enough — you must be an employee or director.

4. Incorrect Earn-Out Structures

Complex deferred consideration arrangements can affect the timing and availability of relief.

5. Assuming Relief Is Automatic

BADR must be claimed and conditions must be met.

Early review reduces risk.

Should You Sell Before April 2026?

If you are already planning to exit within the next 12–24 months, it is sensible to assess whether:

• The disposal could be completed before 6 April 2026
• You already meet all qualifying conditions
• There are shareholding or structural issues to address

However, commercial considerations must always take priority. Tax should support a transaction — not drive a poor commercial decision.

Business Exit Planning in 2025/26

Given the increase in BADR rates, many business owners are reviewing:

• Share structures
• Director appointments
• EMI share option arrangements
• Group reorganisations
• Spousal shareholdings
• Partial disposals

The earlier planning begins, the more flexibility you have.

Waiting until a buyer is found often leaves insufficient time to correct structural issues.

Final Answer: What Is Business Asset Disposal Relief in 2025/26?

Business Asset Disposal Relief in 2025/26 allows qualifying business owners to pay 14% Capital Gains Tax on gains up to a £1 million lifetime limit.

From 6 April 2026, that rate increases to 18%.

If you are considering selling your business, shares, or restructuring ahead of an exit, the timing and structure of the transaction could significantly affect your tax bill.

Individual circumstances vary, and professional advice should be taken before implementing any planning strategy.