Business Asset Disposal Relief, formerly known as Entrepreneurs’ Relief, is a UK tax relief that reduces the capital gains tax rate on qualifying business disposals. This relief applies when you sell or dispose of all or part of your business, including shares in a ‘personal company’ or assets used in your business.
The main benefit of BADR is that it allows business owners to keep more of the profit from the sale by paying a lower tax rate on gains up to a lifetime limit of £1 million. This relief encourages entrepreneurship by making it more financially attractive to sell a business and reinvest or retire.
To qualify for BADR, you must meet certain conditions, such as:
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Being a sole trader or business partner, or holding at least 5% of shares and voting rights in a company
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Having owned the business or shares for at least two years before the sale
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The business must be trading, not just holding investments
These rules ensure that BADR supports genuine business owners who have actively contributed to their company’s growth.
The Increase in Capital Gains Tax to 18% in 2026
Currently, BADR allows qualifying business owners to pay just 14% capital gains tax on their gains. However, the UK government has announced that from 6 April 2026, the capital gains tax rate for BADR will increase to 18%. This change will significantly reduce the tax advantage of selling a business after this date.
This increase aligns the BADR rate with the higher rates of capital gains tax introduced in recent years. While the lifetime limit of £1 million remains, the higher tax rate means that business owners will pay almost double the tax on gains compared to the current rate.
For example, if you sell a business with a gain of £500,000:
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At the original 10% rate, you would have paid £50,000 in tax.
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At the current 14% rate, you will pay £70,000 in tax.
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From April 2026, at 18%, you’ll pay £90,000 in tax.
This £20,000 difference is a significant amount that could affect your financial plans after selling your business.
Why You Should Consider Selling Your Business Before April 2026
Given the upcoming tax increase, selling your business before 6 April 2026 can save you a large sum in capital gains tax. Here are some reasons why acting sooner makes sense:
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Maximise your tax savings: Selling before the rate change means you benefit from the 14% tax rate, keeping more of your profits.
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Plan your finances with certainty: Knowing the tax rate now helps you make clear financial decisions about retirement, reinvestment, or other goals.
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Avoid rushed decisions later: Waiting until after the increase may force you to sell under less favourable conditions or pay more tax.
For business owners who have been considering a sale, this deadline creates a clear incentive to act. Even if you are not ready to sell immediately, starting the process early can help you meet the qualifying conditions and complete the sale in time.
Practical Steps to Prepare for Selling Your Business
If you decide to sell before the tax increase, consider these practical steps to prepare:
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Review your eligibility for BADR: Confirm that you meet the ownership and trading requirements. If you hold less than 5% of shares, you may need to adjust your holdings.
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Get a professional valuation: Knowing the value of your business helps you set a realistic asking price and understand potential gains
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Consult a specialist adviser: A specialist can help you plan the sale to maximise relief and ensure compliance with tax rules
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Organise your financial records: Clear and accurate records speed up due diligence and build buyer confidence.
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Consider timing and market conditions: Selling when the market is favourable can increase your sale price.
What Happens If You Sell After the Tax Increase?
If you sell your business after 6 April 2026, the capital gains tax rate on qualifying gains under BADR will be 18%. This means you will pay more tax on the same gain compared to selling earlier.
While 18% is still lower than the standard capital gains tax rates for higher earners, it reduces the financial benefit of BADR. This change may affect your decision to sell or hold onto your business longer.
You should also consider that tax rules can change again in the future. Planning ahead and acting before known changes take effect is usually the best strategy to protect your financial interests.
Summary and Next Steps
Business Asset Disposal Relief offers a valuable tax advantage for business owners selling their companies. The upcoming increase in the BADR tax rate to 18% from 6 April 2026 means that selling your business before this date can save you tens of thousands of pounds in tax.
To make the most of this relief, review your eligibility, get professional advice, and start preparing your business for sale now. Acting early gives you more options and control over your financial future.
If you are thinking about selling your business, don’t wait until the tax increase takes effect. Planning your sale today could mean keeping a larger share of your hard-earned gains tomorrow.
