The tax relief that determines what you actually keep when you sell your company. What it is, what's changed in 2026, and how to claim it.
Who should read this: UK founders thinking about selling their business in the next two years, anyone holding shares in a company they expect to exit, and founders who want to structure their company correctly now to qualify when the time comes.
Business Asset Disposal Relief, or BADR, is the UK tax relief that gives you a reduced Capital Gains Tax rate when you sell a qualifying business or qualifying shares in a company you've helped build. It's the tax relief that decides how much money you actually walk away with at exit.
If you've heard of "Entrepreneurs' Relief", that's BADR. The scheme was renamed in April 2020 (Finance Act 2020) but most search engines still see them as the same thing. The rules and qualifying conditions are largely the same, but the rate and lifetime limit have both moved several times in recent years.
This guide covers the current 2026 rules, who actually qualifies, how much you save, the rate change that catches most founders out, and how to claim.
The headline numbers are simple. The detail is where the trap is.
| BADR (from 6 April 2026) | Standard CGT (from 6 April 2026) | |
|---|---|---|
| Rate on qualifying gains | 18% | 18% (basic-rate taxpayers) or 24% (higher and additional rate) |
| Lifetime limit | £1m of qualifying gains | No limit, full CGT applies |
| Annual exempt amount | £3,000 (uses the standard CGT allowance) | £3,000 |
| Who can claim | Founders, employees with EMI options, sole traders, partners selling qualifying business assets | Any UK taxpayer making a chargeable gain |
| How to claim | Claim in writing to HMRC by 31 January, two years after the end of the tax year of disposal | Reported on Self Assessment automatically |
| Two-year qualifying period before disposal | Yes, must be met throughout | Not applicable |
From 6 April 2026, BADR's 18% rate is the same as the standard CGT rate for basic-rate taxpayers. So if your total income plus the gain keeps you in the basic-rate band, BADR delivers no tax saving at all. The relief only saves money for higher and additional rate taxpayers (24% to 18% = 6 percentage points off the gain).
The basic-rate trap. BADR at 18% delivers no benefit to basic-rate taxpayers from April 2026 because standard CGT is also 18%. For most founder exits this still applies, because the gain itself pushes you into higher rate. But check before you assume £180k of saved tax.
BADR (formerly Entrepreneurs' Relief) reduces the Capital Gains Tax payable when you dispose of a qualifying business asset. It applies to founders selling their company shares, sole traders selling their business, and partners selling their share of a partnership.
The recent history is important because it's why old guides quote different numbers:
The £1m lifetime limit has held since March 2020. The 2026 rate is the most recent change and it materially reduces the relief's value for higher-rate taxpayers compared to two years ago.
Three boxes need ticking. Miss any one and you don't qualify.
You must own at least 5% of the ordinary share capital of the company AND have at least 5% of the voting rights AND meet one of these:
For EMI option shares there's an exception: you don't need to meet the 5% test as long as the option was granted at least two years before disposal.
You must have met the personal company test continuously for at least two years before the disposal. There's no "almost" here. If you crossed the 5% threshold 23 months ago, you don't qualify yet.
You must be an employee, an officer of the company (typically a director), or a partner in a partnership for at least the same two-year period. Pure passive shareholders don't qualify, even if they own 5%+. This is why many angel investors don't get BADR on their wins.
The company itself must also be a "trading company" (or the holding company of a trading group). Investment companies, property dealing companies, and other "non-trading" structures don't qualify even if everything else lines up.
This is where founders get blindsided by the 2026 rate change. The worked example below uses the post-April 2026 numbers.
A founder owns 30% of a UK trading company they co-founded eight years ago. They sell their shares for £1.5m. Their original cost basis (what they paid for the shares at incorporation) was effectively zero, so the entire £1.5m is a chargeable gain.
Without BADR (assuming they're a higher-rate taxpayer):
With BADR:
BADR saving on this exit: £60,000. That's the 6 percentage points (24% to 18%) on the first £1m of qualifying gain.
This is a stylised example, not advice. The figures assume:
For comparison, the same disposal under the pre-April 2025 rules (10% BADR rate) would have delivered a tax bill of around £268,920. The 2025 and 2026 rate increases together cost this founder about £30k of relief versus the old rules.
Always model your specific scenario with an accountant before relying on any number.
The Autumn Budget 2024 announced phased increases to the BADR rate: 14% from 6 April 2025, 18% from 6 April 2026. Both changes have now taken effect. There's no further increase scheduled, but Budget changes are an annual event so don't bank on it.
Two things to watch:
Claiming is administrative, not difficult. Three steps:
You can claim BADR multiple times in your lifetime, as long as you don't exceed the £1m total lifetime limit across all qualifying disposals.
Failing the 5% test by accident. Founders sometimes dilute themselves below 5% in late funding rounds without realising it costs them BADR on their original holding. The "alternative test" (5% of sale proceeds) helps, but it's not automatic.
Selling within the two-year window. Some founders accept a quick exit in the first 18 months of the company without realising they don't yet qualify. There's no relief available, full CGT applies.
Investment company structures. A holding company that does nothing but hold shares in trading subsidiaries usually qualifies. But a holding company with material non-trading activities (significant cash investments, property investment, intercompany loans for non-trading purposes) can fail the trading company test. This is technical and worth specialist advice.
Forgetting EMI exceptions. EMI option holders often don't realise they can claim BADR on their option shares without meeting the 5% test. A lot of money goes unclaimed because of this.
Missing the claim deadline. Two years from the tax year end isn't a long time when you've just sold a company and are dealing with everything else. Diary the deadline.
Assuming Entrepreneurs' Relief still works. It does, but under the new name, the new rate, and the new £1m limit. The 10%-on-£10m world is gone. Some founders still plan exits using outdated assumptions.
A founder who structured their cap table for the 5% test from day one, kept their employee or director status throughout, knew the lifetime limit was £1m well before the exit conversation started, modelled the post-2026 18% rate against their actual income position, and engaged a specialist tax adviser at term sheet, not at completion.
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This is general information, not financial, tax, or legal advice. Capital Gains Tax rules and BADR specifically have changed several times in recent years and may change again. The numbers and rates above are correct as of May 2026 but always check the latest HMRC guidance and seek independent professional advice before making decisions about disposals or tax planning.