TRW & Co · UK tax
Capital Gains Tax on Selling a Business: Business Asset Disposal Relief
Business asset disposal relief cuts capital gains tax on selling a business or shares in your personal trading company to 18% for disposals from 6 April 2026, on up to £1 million of lifetime gains. This guide covers the qualifying conditions, investors’ relief, claim deadlines and the deal-structuring choices that protect the relief.
Key pointWith main CGT rates at 18% and 24%, the relief now saves at most six percentage points, so getting the deal structure right often matters more than the relief itself.
At a glance
18% from April 2026
Business asset disposal relief charges 18% on qualifying gains from 6 April 2026, up from 14% in 2025-26 and 10% before 6 April 2025.
£1 million lifetime limit
Relief applies to a total of £1 million of qualifying gains over your lifetime, and you can claim it on more than one disposal.
Five per cent tests
For shares, you need at least 5% of shares and votes, plus 5% of profits and assets or of sale proceeds, for two years.
Officer or employee
You must be an officer or employee of the company or its trading group throughout the two years ending with the sale.
Claim deadline
Claim by the first anniversary of 31 January after the tax year of sale; for 2025-26 disposals the deadline is 31 January 2028.
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The short answer: business asset disposal relief in 2026
Business asset disposal relief (BADR) reduces the capital gains tax rate on a qualifying sale of a business or of shares in a personal trading company. For disposals on or after 6 April 2026, the BADR rate is 18%. It was 14% for disposals in 2025-26 and 10% before 6 April 2025. Relief is limited to £1 million of qualifying gains over your lifetime.
The value of the relief has narrowed. The main capital gains tax rates are now 18% and 24%, so for a higher or additional rate taxpayer BADR saves six percentage points. On the full £1 million lifetime limit, that is a saving of up to £60,000 compared with the 24% rate. For a basic rate taxpayer whose gain would fall within the basic rate band, there may be no rate saving at all.
The relief still matters, but it is now one part of the exit plan rather than the centrepiece. The bigger tax questions are usually deal structure, how consideration is paid, and what happens to the proceeds afterwards.
Qualifying conditions for business asset disposal relief
HMRC’s guidance on Business Asset Disposal Relief and helpsheet HS275 set out the main routes to relief. Each condition must usually be met throughout the two years ending with the disposal.
Selling shares in a personal company
- You are an officer or employee of the company, or of a company in the same trading group.
- The company is a trading company, or the holding company of a trading group.
- The company is your “personal company”: you hold at least 5% of the ordinary shares and voting rights, and are entitled to at least 5% of either distributable profits and assets on a winding up, or disposal proceeds on a sale of the whole company.
For shares acquired through Enterprise Management Incentive options, the 5% personal company test does not apply. Instead, the shares must have been acquired after 5 April 2013 and the option granted at least two years before the disposal. Our guide to EMI share options explains how this works for employees.
Selling a sole trade or partnership interest
A sole trader or partner can claim on the disposal of all or part of the business, provided they have owned it for at least two years. Where a business ceases, relief can apply to assets disposed of within three years of cessation. Shares and assets held as investments do not qualify.
Associated disposals
Assets owned personally but used by your personal company or partnership, such as premises, can qualify as an associated disposal if sold alongside a qualifying disposal of the shares or partnership interest. The asset must have been used in the business for the relevant period. Where the company paid you rent, only a just and reasonable proportion of the gain qualifies.
Rates, limits and how business asset disposal relief compares
| Relief or rate | Rate from 6 April 2026 | Lifetime limit | Who typically uses it |
|---|---|---|---|
| Business asset disposal relief | 18% (14% in 2025-26; 10% before 6 April 2025) | £1 million of gains | Founders, directors and employees with at least 5%, sole traders and partners |
| Investors’ relief | 18% (same rate as BADR) | £1 million of gains for disposals from 30 October 2024 | External investors who subscribed for new shares and are not officers or employees |
| Main capital gains tax rates | 18% within the basic rate band; 24% above | None | All other gains of individuals |
| Employee ownership trust relief | Relief on 50% of the gain for disposals from 26 November 2025 | None | Owners selling a controlling interest to an EOT |
Rates are from HMRC’s capital gains tax rates guidance. The BADR rate increases were legislated by section 8 of the Finance Act 2025, and the employee ownership trust restriction by section 35 of the Finance Act 2026.
Investors’ relief
Investors’ relief is aimed at external investors rather than management. According to helpsheet HS308, it applies to shares in an unlisted trading company that you subscribed for on or after 17 March 2016 and have held for at least three years. It is not usually available if you, or someone connected with you, is an officer or employee of the company. The lifetime limit was cut from £10 million to £1 million for disposals from 30 October 2024, and the rate now matches BADR.
Claiming business asset disposal relief: process and deadlines
The relief is not automatic. It must be claimed, either in your Self Assessment return or on the claim form that accompanies HS275.
- Confirm eligibility early. At least two years before a likely sale, check the 5% tests, officer or employee status and the trading status of the company and group. Problems found late are usually impossible to cure.
- Review trading status. Look at cash balances, investment property and other non-trading activities, which can put the company’s trading status at risk.
- Fix the disposal date. For capital gains tax, the disposal usually takes place when an unconditional contract is made, or when a conditional contract becomes unconditional. Rate changes and tax years turn on that date.
- Structure the consideration. Decide how much is paid in cash, loan notes, shares in the buyer or earn-out, and take advice on how each element interacts with the relief.
- Calculate and allocate. Work out the qualifying gain, deduct losses and the annual exempt amount in the most efficient order, and check how much lifetime limit remains.
- Make the claim on time. Claim by the first anniversary of 31 January following the end of the tax year of disposal. For a disposal in 2025-26, HMRC’s deadline is 31 January 2028.
- Keep records. Retain shareholding records, board minutes, payroll evidence of employment and financial statements supporting trading status.
Check the 5% tests and officer or employee status at least two years before a sale. A founder who resigned as a director, or whose holding was diluted below 5% in a funding round without an election, can lose the relief entirely.
Deal structuring around business asset disposal relief
Share sale or asset sale
On a share sale, the shareholder disposes of shares and can claim relief directly. On an asset sale, the company sells the business and pays corporation tax on its gains, and the proceeds are trapped in the company until extracted. Extraction through a members’ voluntary liquidation can be a capital distribution, but anti-avoidance rules may treat it as income in some circumstances. Our comparison of share purchase and asset purchase covers the wider legal trade-offs.
Loan notes, earn-outs and shares in the buyer
Where consideration is satisfied by shares or loan notes in the buyer, the share-for-share exchange rules may defer the gain. That can mean the gain is later realised on shares that no longer qualify, for example because the seller holds less than 5% of the buyer. HS275 explains that a seller can elect to disapply the exchange rules so that relief is claimed at the time of the exchange.
Earn-outs raise similar issues. The right to future, unascertainable consideration can be treated as a separate asset, so gains on the earn-out itself may not qualify. Structuring the earn-out as shares or loan notes may preserve relief in some cases, but the drafting must be done with the tax analysis in mind.
Pre-sale reorganisations
Budget 2025 modernised the anti-avoidance rules on share exchanges and reorganisations for issues of shares or debentures on or after 26 November 2025. Holding company insertions, demergers and capital reductions ahead of a sale need commercial reasons and, often, HMRC clearance.
Employee ownership trusts as an alternative
A sale of a controlling interest to an employee ownership trust used to be free of capital gains tax for the seller. For disposals from 26 November 2025, relief is restricted to 50% of the gain, and the other half is taxable at normal rates. An EOT sale therefore has to be compared carefully with a trade sale or management buyout, including how any reliefs apply to the taxable half.
EOTs still offer continuity for staff and can be funded from future profits. However, the seller usually receives much of the price over several years, which carries credit risk. Our guide to the employee ownership trust explains the conditions and the trustee residence and independence rules.
Illustrative scenario: a founder sale under the 2026 rules
Illustrative only; generic parties; simplified figures that ignore the annual exempt amount and other income. Two founders each own 40% of a trading company and are both directors. A management team holds the remaining 20%, and two senior managers hold EMI shares. A trade buyer offers a mix of cash and loan notes, with a modest earn-out.
Each founder’s gain on the first £1 million qualifies for BADR at 18%, provided they have unused lifetime limit. The balance is taxed at 24% if they are higher rate taxpayers. The managers with EMI shares can also claim relief if their options were granted at least two years before the sale, even though they hold less than 5%. On the loan notes, the founders decide whether to elect to disapply the exchange rules so that relief is claimed immediately rather than risked later.
One founder also owns the office building, which the company has used rent-free for the last five years. Its sale to the buyer can be an associated disposal, using any remaining lifetime limit. The earn-out is drafted so that its tax treatment is understood before signing, not after.
Risks and common mistakes
Losing trading status through cash and investments
A company is not a trading company for business asset disposal relief if non-trading activities are substantial. Large cash balances, let property or investment portfolios can put the relief at risk, and the test must be met throughout the two-year period. Owners preparing for a sale sometimes discover that surplus profits retained for years have tipped the balance. Review the balance sheet well ahead of a sale and document any genuine trading purpose for retained cash, or consider extracting it in good time.
Dilution below 5% in a funding round
A founder whose holding falls below 5% because of a share issue can lose relief on a later sale. HS275 explains that where the dilution is caused by a relevant share issue, the founder can elect to be treated as disposing of and reacquiring the shares immediately before the issue, crystallising a gain that qualifies. A further election can defer the tax until the shares are actually sold. These elections are time-limited and easily overlooked in the excitement of a funding round.
Resigning as a director before completion
The officer or employee condition must be met throughout the two years ending with the disposal. Founders who step down as directors or employees before the sale completes, for example to take a non-executive role or to retire, can fall outside the relief. If a change of role is planned, take advice on timing so that it happens after completion, or on whether the relevant two-year period can end earlier because the company ceased to trade.
Forgetting the claim deadline
Business asset disposal relief must be claimed by the first anniversary of 31 January following the tax year of disposal. For a disposal in 2025-26, that is 31 January 2028. If the relief is not claimed in time, it is lost. Make sure your accountant knows a claim is needed, and keep evidence that each condition was met in case HMRC enquires.
Cross-border angle: sellers moving abroad
Non-UK residents are generally outside UK capital gains tax on shares in trading companies. Some sellers therefore consider leaving the UK before a sale. The temporary non-residence rules can bring gains back into charge on return after a short period abroad, and residence is decided by the statutory residence test. Our guide to the statutory residence test explains the day counts and ties.
Founders with family or business connections in Bangladesh should also consider how proceeds will be taxed and moved there. The UK–Bangladesh double tax treaty and Bangladeshi foreign exchange rules may affect the plan for proceeds.
What to do next: a seller’s checklist
- Confirm how much of your £1 million lifetime limit remains.
- Check the 5% tests, officer or employee status and trading status for the two years before your target sale date.
- For EMI shares, confirm that the options were granted at least two years before the expected sale.
- Decide early on share sale or asset sale, and on the mix of cash, loan notes, shares and earn-out.
- Review personally owned assets used by the business for associated disposal relief.
- Consider whether an employee ownership trust sale suits your goals, now that relief is restricted to 50% of the gain.
- Diary the claim deadline as soon as the deal completes.
TRW & Co’s London office is authorised and regulated by the Solicitors Regulation Authority. Our business sale lawyers work with our transaction tax team so that the relief is protected through the deal documents. To discuss a planned exit, contact our London team at info@trw.co or +880 1779 127165.
Frequently asked questions
01What is the business asset disposal relief rate in 2026?
For disposals on or after 6 April 2026, business asset disposal relief charges capital gains tax at 18% on qualifying gains. The rate was 14% for disposals between 6 April 2025 and 5 April 2026 and 10% before that. Because the main capital gains tax rates are 18% and 24%, the relief now mainly benefits higher and additional rate taxpayers, saving up to six percentage points on gains within the £1 million lifetime limit.
02What is the lifetime limit for business asset disposal relief?
You can claim business asset disposal relief on a total of £1 million of qualifying gains over your lifetime. There is no limit to the number of claims, but each claim uses part of the limit. HMRC notes that people who made qualifying disposals before 11 March 2020 may have been able to claim more under the earlier limit. Investors’ relief has a separate £1 million lifetime limit for disposals from 30 October 2024.
03Do I need 5% of the shares to qualify?
For most share sales, yes. Throughout the two years before the sale, the company must be your personal company, meaning you hold at least 5% of the shares and voting rights and are entitled to at least 5% of distributable profits and assets on a winding up, or of disposal proceeds on a sale. Shares acquired through EMI options are an exception: there is no 5% test if the option was granted at least two years before the sale.
04How do I claim business asset disposal relief?
You claim through your Self Assessment tax return or by completing the claim form with helpsheet HS275. The claim must be made by the first anniversary of 31 January following the end of the tax year in which the disposal took place. For a disposal in the 2025-26 tax year, the deadline is 31 January 2028. Trustees must make a joint claim with the qualifying beneficiary.
05Can I claim relief on an earn-out?
It depends on how the earn-out is structured. Where the future amount cannot be ascertained at completion, the right to receive it can be treated as a separate asset, so a later gain on that right may not qualify. Where earn-out consideration is satisfied in shares or loan notes, share exchange rules may apply instead, and HS275 explains that you can elect to disapply them to claim relief at the time of the exchange. Get advice before signing.
06What is the difference between BADR and investors’ relief?
Business asset disposal relief is for founders, directors, employees, sole traders and partners who meet the 5% and officer or employee tests. Investors’ relief is for external investors who subscribed for new shares in an unlisted trading company on or after 17 March 2016, held them for at least three years, and are not usually officers or employees. Both now charge 18% from April 2026, and each has its own £1 million lifetime limit.
Sources and official materials
- Business Asset Disposal Relief — HMRC eligibility, rates, lifetime limit and claim deadlines
- Business Asset Disposal Relief (Self Assessment helpsheet HS275) — Detailed conditions, associated disposals, dilution and exchange elections
- Investors’ Relief (HS308) — Conditions and lifetime limit for investors’ relief
- Capital Gains Tax rates and allowances — Current and historic CGT rates, including BADR
- Finance Act 2025, section 8 — Increase in the BADR rate to 14% and then 18%
- Finance Act 2026, section 35 — Restriction of relief on disposals to employee ownership trusts
General information only, current as at 21 October 2026. It is not legal advice and does not create a solicitor–client relationship. It reflects the law of England and Wales unless stated otherwise; Scotland and Northern Ireland have separate legal systems, and the law changes frequently. Check current official sources and take advice on the facts of your matter.