Entrepreneurs’ Relief (BADR): What It Is & Who Qualifies

Entrepreneurs Relief BADR is one of the most valuable Capital Gains Tax reliefs available when you sell your business. Business Asset Disposal Relief (still widely known by its old name, Entrepreneurs’ Relief) is a Capital Gains Tax relief that can reduce the amount of tax you pay when you sell or close a business. This article explains exactly how it works, who qualifies, what the current rules look like in 2026/27 and what you need to do to make a valid claim. It is aimed at limited company directors, sole traders and business partners who are considering selling up or winding down.

• What is Business Asset Disposal Relief?
• BADR vs Entrepreneurs’ Relief: what changed?
• The BADR rate explained
• Who qualifies for BADR?
• The qualifying conditions in detail
• What assets qualify?
• How to claim BADR
• Common mistakes that cost people the relief
• BADR and tax planning
• Frequently asked questions

What is Business Asset Disposal Relief?

Business Asset Disposal Relief (BADR) is a Capital Gains Tax (CGT) relief available to individuals who dispose of qualifying business assets. Instead of paying CGT at the standard rates, which in 2026/27 are 18% for basic rate taxpayers and 24% for higher rate taxpayers on most assets, you pay a single rate on qualifying gains, whatever your income: 18% from 6 April 2026 (14% in 2025/26 and 10% before April 2025), up to a lifetime limit of £1 million. For full details, see HMRC’s official guidance on Business Asset Disposal Relief. That £1 million lifetime limit is not per disposal. It applies across your entire lifetime. If you claimed £600,000 worth of gains under BADR five years ago, you only have £400,000 of relief remaining. The relief applies to gains from selling a business, a share of a business or shares in a trading company where you are a qualifying employee or officer. It does not apply to investment gains, buy-to-let property or shares held purely as an investment.

BADR vs Entrepreneurs’ Relief: what changed?

The relief was originally called Entrepreneurs’ Relief. In April 2020, the government rebranded it as Business Asset Disposal Relief and simultaneously cut the lifetime limit from £10 million down to £1 million. The underlying rules remained broadly the same, but the drastically reduced limit meant far fewer people could use the full relief when selling a high-value business. The name changed, but Entrepreneurs Relief BADR still works the same way in practice. If you hear someone refer to “Entrepreneurs’ Relief” today, they mean BADR. The terms are interchangeable in everyday use, but on your tax return and in correspondence with HMRC, you should refer to it by its current name: Business Asset Disposal Relief.

The BADR rate explained

In 2026/27, the standard CGT rates for most assets (excluding residential property) are 18% for gains falling within the basic rate band and 24% for gains above it. BADR taxes qualifying gains at 18% in 2026/27, whether you are a basic or higher rate taxpayer. Because that now matches the basic rate of CGT, the saving comes from gains that would otherwise be taxed at 24%. To put that in practical terms: if you sell your trading company shares and realise a gain of £500,000, and that entire gain qualifies for BADR, you pay £90,000 in CGT at 18%. Without BADR, a higher rate taxpayer would pay £120,000 at 24%. That is a saving of £30,000 on a single disposal. Any gains above the £1 million lifetime limit are taxed at the normal CGT rates. You also still have your annual CGT allowance (£3,000 in 2026/27) to deduct before calculating the tax due.

Who qualifies for BADR?

BADR is not automatic. You need to meet specific conditions. BADR is not available to everyone who sells a business asset. You must fall into one of the following categories:

• A sole trader or business partner selling all or part of your business, or business assets after the business has ceased.
• A limited company shareholder who is also an employee or office holder (e.g. a director) selling shares in a qualifying trading company.
• A trustee disposing of qualifying business assets held in trust, in certain circumstances.

Passive investors, people who hold shares but have no role in the business, do not qualify. The relief is specifically designed for owner-managers and working shareholders, not for those who simply back a business financially. Both sole traders and limited company directors can benefit, provided they meet the specific conditions set out by HMRC. Freelancers operating as sole traders, limited company directors in construction trades and healthcare professionals running their own practices are all common claimants.

The qualifying conditions in detail

The rules differ slightly depending on whether you are a sole trader/partner or a limited company shareholder. Here is a breakdown of each.

Sole traders and business partners

To qualify, all of the following must apply for at least two years ending on the date of disposal:

• You must have owned the business throughout that two-year period.
• The business must be a trading business (not an investment business).
• If you are disposing of assets after the business has ceased, the disposal must take place within three years of cessation and the two-year ownership condition must have been met before the business stopped trading.

Limited company shareholders

To qualify, throughout the two years ending on the date of disposal, all of the following must be true:

• The company must be a qualifying trading company (or the holding company of a trading group).
• You must hold at least 5% of the ordinary share capital.
• Your 5% shareholding must carry at least 5% of the voting rights.
• You must be an employee or officer (such as a director) of the company.
• Your shares must entitle you to at least 5% of the company’s distributable profits and 5% of its net assets on a winding up. (This condition was added in April 2019 and catches arrangements designed to dilute qualifying shareholdings artificially.)

The two-year qualifying period is firm. If you sell your shares after 18 months, you will not qualify even if every other condition is met. Planning ahead is essential, if you know a sale is likely, make sure your qualifying period has been running long enough before you dispose of the shares.

What counts as a “trading company”?

HMRC applies a trading test. A company must exist wholly or mainly for trading purposes. If a company holds substantial investment assets (such as surplus cash, commercial property let to third parties or a large share portfolio) it may fail the trading test. HMRC uses a “substantially” threshold, generally interpreted as 80% of activities being trading in nature. If your company has significant non-trading assets, take advice before assuming BADR will apply.

What assets qualify?

The disposal must be of one of the following:

• The whole or part of a sole trade or partnership business.
• Assets used in a sole trade or partnership business that has now ceased.
• Shares in a qualifying trading company where you meet the employee/officer and shareholding conditions above.
• Securities (such as loan notes) in a qualifying trading company, provided they were originally exchanged for qualifying shares.

Assets that do not qualify include buy-to-let residential property, shares held purely as investments and assets of a company that does not meet the trading test. If you are a landlord selling a rental property, BADR is not available to you: different CGT rules apply.

How to claim BADR

You claim BADR through your self assessment tax return. There is no separate form. You report the disposal in the Capital Gains Tax pages of your Self Assessment return and tick the box to claim BADR against the relevant gain. The claim must be made by the first anniversary of the 31 January following the end of the tax year in which the disposal occurred. In practice, that means you have just under 22 months from the end of the tax year to make the claim. Miss the deadline and HMRC will not accept a late claim, regardless of the circumstances. If you are disposing of shares, retain documentary evidence of:

• Your shareholding percentage throughout the two-year qualifying period.
• Your employment or directorship records for the same period.
• The company’s trading status throughout the qualifying period.
• The date of disposal and the proceeds received.

For sole traders, keep records of when the business started, the date of disposal or cessation and any asset valuations used to calculate the gain. Claiming BADR incorrectly, or failing to retain adequate records, can result in HMRC refusing the relief and raising a tax assessment at the full CGT rate. Your accountant should review the disposal before you file your return. At NDCA, we handle corporation tax and self assessment for business owners, including checking BADR eligibility before disposal wherever possible.

Common mistakes that cost people the relief

BADR has some sharp edges. These are the errors we see most often.

Not meeting the two-year rule

The two-year qualifying period catches people out more than any other condition. A director who was appointed less than two years before the sale, or a sole trader who started trading less than two years before disposal, will not qualify. Plan ahead and ensure the clock has been running long enough.

Holding less than 5%

If you have issued new shares to investors or employees and your holding has dropped below 5%, you will no longer qualify. If this happens, you may be able to make a “crystallisation election”, effectively locking in a BADR-qualifying gain at the point your holding fell below 5%, but this must be done within specific time limits. Take advice before any share issuance that would dilute you below the threshold.

The company failing the trading test

Companies that accumulate cash, hold property let to third parties or have ceased active trading may not pass HMRC’s trading test. If your company has been building up a cash reserve or has property within it, check the position before assuming you qualify.

Missing the claim deadline

The deadline for making a BADR claim is statutory. There is no discretion for HMRC to accept a late claim. If you miss it, the gain is taxed at the standard CGT rate and there is no remedy. File your self assessment return on time and ensure the BADR claim is included.

Claiming on non-qualifying assets

BADR does not apply to all business assets. Assets held outside the business (for example, a property owned personally but used by the business) may not qualify unless specific conditions are met. The rules around “associated disposals” are complex, and the relief available on associated disposals is often restricted.

BADR and tax planning

If you are thinking about selling your business in the next few years, the time to plan is now, not when you have received an offer. Start by confirming you meet, or will meet, the two-year qualifying conditions by the date of disposal. If your company holds non-trading assets, consider whether they can be removed (for example, by distributing surplus cash as a dividend or transferring property out of the company) before the sale. This can help ensure the company passes the trading test. Consider the lifetime limit carefully. With a £1 million cap, higher-value business sales will produce gains that exceed the BADR threshold. In those cases, structure matters: for example, proceeds above £1 million will be taxed at the standard CGT rate of 18% or 24%, so understanding the full picture is important when negotiating sale terms. For company directors, ensuring your annual accounts accurately reflect the trading nature of the company and that your management accounts are up to date will make it far easier to demonstrate trading status to HMRC if challenged. If you are a sole trader, keeping proper bookkeeping records throughout the life of the business means you can produce clean figures showing your cost of acquisition, any allowable improvement costs and the disposal proceeds: all of which feed into the gain calculation. BADR does not exist in isolation. Depending on your circumstances, you might also want to consider Investors’ Relief (which applies to shares held by non-employee investors, with a separate £1 million lifetime limit), holdover relief or rollover relief. Each has different conditions and cannot simply be combined with BADR without careful thought.

Frequently asked questions

Is Entrepreneurs’ Relief the same as Business Asset Disposal Relief?

Yes. Entrepreneurs’ Relief was renamed Business Asset Disposal Relief in April 2020. The name changed but the core rules stayed broadly the same. The most significant change was the reduction of the lifetime limit from £10 million to £1 million.

What is the BADR tax rate in 2026/27?

In 2026/27, qualifying gains under BADR are taxed at 18%, up from 14% in 2025/26. The standard CGT rates are 18% (basic rate) and 24% (higher rate), so BADR saves up to 6 percentage points on gains that would otherwise fall in the higher rate band.

Do I qualify for BADR if I own less than 5% of my company?

No. At least 5% of the ordinary shares and votes, held for the full two years before the sale. If your holding has fallen below 5% due to new share issuances, speak to an accountant urgently. There may be a crystallisation election available within a limited time window.

Can I claim BADR on the sale of my buy-to-let property?

No. BADR does not apply to residential property held as an investment. It is restricted to trading businesses and qualifying trading company shares. Different CGT rules apply to property disposals.

What is the BADR lifetime limit?

The lifetime limit is £1 million of qualifying gains. This applies across your entire lifetime, not per disposal. Once you have used £1 million of BADR gains, any further qualifying disposals are taxed at the standard CGT rate.

When do I need to make a BADR claim?

You claim BADR on your Self Assessment tax return. The deadline is the first anniversary of 31 January following the end of the tax year in which the disposal took place. For a disposal in the 2026/27 tax year, the deadline is 31 January 2028. Missing this deadline means you lose the relief permanently.