Business Asset Disposal Relief has moved twice in two years. For disposals on or after 6 April 2026 it charges qualifying gains at 18%, up from 14% in 2025/26 and 10% before 6 April 2025.
That third step did something the first two did not. The BADR rate now sits level with the lower main rate of Capital Gains Tax, which changes what the relief is worth and, for some clients, whether it is worth anything at all.
Two other things reshaped the landscape and are easy to miss in guidance written before them: an anti-forestalling rule that decides which rate applies to deals signed before April and completing after it, and a set of Autumn Budget 2025 measures that hit reorganisations, employee ownership trusts and incorporations. This guide covers all of it, plus the conditions where claims actually come apart.
BADR applies a reduced rate of Capital Gains Tax to qualifying disposals of all or part of a business. The gain is still computed and reported in the ordinary way, and the annual exempt amount and losses apply as usual. Only the rate changes, and only up to the lifetime cap.
That distinction matters when a client describes a sale as "tax free up to a million". It never was, and at 18% the gap between the relieved rate and the standard one has narrowed considerably.
The relief targets owners genuinely disposing of a business or a meaningful stake: sole traders and partners selling all or part of a business, and individuals selling shares in their personal trading company. Because the aim is narrow, the conditions are strict and heavily litigated.
Since 30 October 2024, main CGT rates have been 18% on gains falling within the basic rate band and 24% on gains above it. From 6 April 2026, BADR charges 18%.
The consequence is blunt. For any slice of gain that would have been taxed at the lower main rate, BADR now produces no saving whatsoever. The relief is worth 6 percentage points, and only on gains that would otherwise fall into the 24% band.
In practice most business sales are large enough that the basic rate band is exhausted early, so the relief still does real work. For a client with modest other income and a smaller gain, the calculation deserves a fresh look before anyone promises a number.
On a £1 million qualifying gain taxed entirely at the higher rate, the move from 10% to 18% adds £80,000 of tax on the relieved slice. That is the headline figure clients recognise, and it is worth putting in writing early in any exit conversation.
This is now the live question for any deal still working through completion, and it is the part most pre-April commentary skips.
Ordinarily, the disposal date for CGT is the date of the contract, not completion. That rule would have allowed an unconditional contract signed in 2025/26 to lock in the 14% rate even though completion came much later. Anti-forestalling closes that route.
Where an unconditional contract was entered into in 2025/26 and completes on or after 6 April 2026, the new rate applies, unless the parties can show the arrangement is an excluded contract. Two conditions define that:
Two practical points follow. First, the claim that a contract is excluded must be made by the person realising the gain, so the burden sits with the seller. Second, a £100,000 de minimis removes the paperwork rather than the test: where total gains on all excluded contracts do not exceed £100,000, no claim is needed, but the contract must still meet the excluded-contract conditions for the old rate to apply.
The rules sit at CG64174 and CG10250 in HMRC's Capital Gains Manual. For any client who signed before April and completed after, this single question decides the rate, and the file should record how it was resolved.
The cap is a lifetime limit of £1 million of qualifying gains, unchanged by Autumn Budget 2025. Two consequences get overlooked:
Gains above the limit fall to the standard rate, currently 24% for higher-rate taxpayers. On a large disposal, BADR therefore shelters a shrinking share of the total.
The relevant conditions must generally be met throughout a minimum two-year period ending with the disposal. Late restructuring is the classic trap: a share reorganisation, an incorporation or a change in shareholding shortly before a sale can break or reset that period.
Where a business has ceased, the disposal of its assets must fall within three years of cessation for the relief to remain available.
For a company to be an individual's personal company, the individual must hold at least 5% of the ordinary share capital by nominal value and 5% of the voting rights. On top of that, one of two economic tests must be met:
The economic test must be satisfied throughout the qualifying period, not merely at the disposal date. Venture-backed companies are the usual casualties: a liquidation preference ranking ahead of the ordinary shares can strip a founder's entitlement to 5% of the assets on a winding up, and preference rights can do the same to the distributable-profits test, so a holding that looks comfortable by nominal value can still fail the economic test. Where a holding falls below 5% because the company issued new shares, an election may preserve relief on the gain accrued to that point.
Individuals disposing of shares acquired under EMI options are treated more generously: the qualifying period runs from the date of grant, and the personal-company test is not applied in the same way.
The company must be a trading company or the holding company of a trading group, meaning its activities do not include non-trading activities "to a substantial extent".
HMRC's guidance once said substantial meant more than 20%. That passage was removed from CG64090 following Allam [2021] UKUT 291 (TCC), where the Upper Tribunal held that applying a numerical threshold is not appropriate and endorsed a holistic assessment of what the company actually does.
The 20% figure survives only as a screening point: where neither non-trading income nor non-trading assets suggest the non-trading element exceeds 20%, HMRC is unlikely to look further. Above that, the position needs reasoning rather than a ratio.
Recent litigation shows the risk is live. In Moffat [2025] UKFTT 663 (TC) the First-tier Tribunal found the non-trading element substantial and denied the relief, claimed as entrepreneurs' relief on a 2016/17 disposal under the same statutory test. The penalties were a different matter: the tribunal cancelled them because the taxpayers had taken professional advice and were not careless. Surplus cash parked for years and investment property sitting alongside a trade remain the common fact patterns, and a documented view formed early is worth considerably more than one constructed under enquiry.
Where an individual sells a personally-held asset used by the business, the associated-disposal rules are narrow and easy to trip, particularly where rent has been charged. Restrictions can cut the relief substantially, and the arrangement is usually years old before anyone examines it.
A claim must be made by the first anniversary of the 31 January following the end of the tax year of disposal, which for 2026/27 disposals means 31 January 2029
Three measures announced on 26 November 2025 bear directly on BADR planning.
The anti-avoidance rule in section 137 TCGA 1992 was tightened by Finance Act 2026, with effect for transactions from 26 November 2025. The carve-out for shareholders holding 5% or less has been removed, and the rule now applies where the main purpose, or one of the main purposes, of the arrangements is to reduce or avoid CGT or corporation tax.
ICAEW has flagged arrangements aimed at accessing BADR as a specific target. HMRC's guidance at CG-APP20 includes an example where shares are included in an exchange so that a purchasing company becomes a shareholder's personal company for BADR purposes, and treats section 137 as applying. HMRC adds that the personal-company avoidance provisions in section 169S(3) to (3B) are likely to apply on the same facts, and the earlier appendix, CG-APP19, now survives only for clearance applications submitted before the change. Reorganisations undertaken to repair or create a BADR position now carry materially more risk than they did a year ago.
For disposals to an EOT on or after 26 November 2025, CGT relief was cut from 100% to 50% of the gain. The remaining half is chargeable, and neither BADR nor Investors' Relief is available against it. Any modelling that treated an EOT exit as fully relieved needs revisiting.
From 6 April 2026, incorporation relief under section 162 TCGA no longer applies automatically. The transferor must claim it in the self-assessment return for the year of transfer, with details of the transaction and computations, and section 162A is repealed. For any client who incorporated ahead of a sale, this is a filing obligation that did not previously exist.
Illustrative figures. Assumes a higher-rate taxpayer, no other disposals in the year, and the annual exempt amount unused.
A client sells shares in a qualifying trading company in 2026/27, realising a £1.2 million gain, with no prior BADR used.
The same disposal completed before 6 April 2025 would have taxed the first £1 million at 10%, or £100,000. The relieved slice alone therefore costs £80,000 more today.
Now assume the client claimed BADR on £600,000 of gains a decade earlier. Only £400,000 of lifetime limit remains, so £400,000 is relieved at 18% and £797,000 is taxed at 24%. The answer moves by £36,000 on history alone, because £600,000 of gain shifts from 18% to 24%, which is why the remaining allowance belongs in the first conversation.
Questions like "does this reorganisation break the qualifying period?", "is this contract excluded from anti-forestalling?" or "how much lifetime limit survives a 2017 disposal?" are the daily traffic of an exit engagement. They are quick to ask, slow to answer well, and expensive to answer wrongly. They also change: three of the rules in this article moved within the last nine months.
GAIN Tax is built for exactly that problem, returning UK-grounded answers with the primary source attached to every claim, so a position can be confirmed in seconds and the citation kept on file. We publish our accuracy benchmark openly, and our sources and update policy sets out how answers are kept current, which matters most on a relief whose rate has moved twice and whose surrounding rules moved again at the last Budget. If you are comparing tools, our guide to choosing AI tax research software sets out the criteria that matter for a UK practice.
The judgement stays where it belongs. Whether a company is trading, whether a contract was commercially motivated, whether a period was broken: research gets an adviser to the right rule quickly, and the file should still show who decided how it applied.
BADR in 2026/27 is a narrower benefit than the relief many clients remember. At 18%, capped at £1 million, with the excess at 24% and no advantage at all inside the basic rate band, the value now sits almost entirely in getting the conditions right.
The work that pays is unglamorous: settle the anti-forestalling position on any straddling contract, establish the remaining lifetime limit, test the 5% entitlement across the full period, form a documented view on trading status, and check that last November's changes have not undermined a plan built before them.
Need to confirm a BADR condition against the legislation quickly? Start a free trial of GAIN Tax, or book a call to discuss a firm-wide rollout. More guides are on the GAIN Tax blog.
What is the Business Asset Disposal Relief rate for 2026/27? 18% for qualifying disposals made on or after 6 April 2026. The rate was 14% in 2025/26 and 10% up to 5 April 2025.
Is BADR still worth claiming at 18%? It depends where the gain sits. Main CGT rates are 18% within the basic rate band and 24% above it, so BADR saves 6 percentage points on gains that would otherwise be taxed at 24% and nothing at all on gains falling within the basic rate band.
If the contract was signed before 6 April 2026, does the old rate apply? Not automatically. Where an unconditional contract entered into in 2025/26 completes on or after 6 April 2026, anti-forestalling applies the new rate unless the contract is an excluded contract, meaning it was not entered into for a tax-timing advantage and, between connected parties, was wholly for commercial reasons. Where total gains on all excluded contracts do not exceed £100,000, no claim is needed, though the excluded-contract conditions still have to be met.
Is the £1 million limit per disposal or per person? Per person, for life. Gains relieved on earlier disposals count against the same £1 million, so establishing the remaining allowance is part of scoping an exit.
Does "substantial" non-trading activity still mean more than 20%? No. HMRC removed that wording from CG64090 after Allam [2021] UKUT 291 (TCC), where the Upper Tribunal rejected a numerical threshold in favour of a holistic assessment. In practice, where non-trading income and assets stay under 20%, HMRC is unlikely to look further.
Can I still get BADR on a sale to an Employee Ownership Trust? Not alongside EOT relief. For disposals on or after 26 November 2025, EOT relief exempts 50% of the gain, and neither BADR nor Investors' Relief is available where relief under section 236H TCGA 1992 has been claimed. It is a choice rather than a bar: a seller could forgo EOT relief and claim BADR instead, though at an effective 12% against 18% the EOT route usually wins on tax alone.
Why do BADR claims usually fail? On the conditions rather than the calculation: a broken qualifying period, failure of the 5% capital, voting or economic tests after a funding round or reorganisation, substantial non-trading activity, or the narrow associated-disposal restrictions where rent has been charged.