The BADR 2026 rate change is one of the most significant tax shifts for UK business owners in years. From 6 April 2026, the rate of Business Asset Disposal Relief (formerly Entrepreneurs' Relief) rises from 14% to 18%. That is a 4 percentage point increase on gains above your annual exempt amount. For a business sale worth £500,000, the difference is roughly £20,000 in extra tax.

If you are considering selling your company, your shares, or your business assets, the timing of that sale matters more than ever. This article explains what the BADR 2026 rate change means, who it affects, and how to plan around it.

As ICAEW qualified accountants, we work with business owners across the UK who are navigating these changes. This guidance is general. Your situation may differ, so speak to a qualified accountant before making any decisions.

What is BADR and Why Does the Rate Matter?

Business Asset Disposal Relief (BADR) reduces the Capital Gains Tax (CGT) rate on qualifying business disposals. It applies when you sell or dispose of:

  • Shares in your personal trading company (you must hold at least 5% of the shares and voting rights)
  • All or part of your unincorporated business (sole trader or partnership)
  • Assets you used in your business after you cease trading (within 3 years)

The relief has a £1 million lifetime limit. Once you have used that limit, any further gains are taxed at the standard CGT rates: 18% for basic rate taxpayers and 24% for higher rate taxpayers (non-residential assets).

The rate history matters here. Before 30 October 2024, BADR was 10%. The Autumn Budget 2024 raised it to 14% for disposals from 6 April 2025. The BADR 2026 rate change takes it to 18% from 6 April 2026. That is an 80% increase in the tax rate in under two years.

Who Does the BADR 2026 Rate Change Affect?

If you are a director-shareholder of a trading company, a sole trader, or a partner in a business partnership, you are likely affected. The change hits hardest if:

  • You plan to sell your company in the next 12 to 24 months
  • You are approaching retirement and planning to exit
  • You hold shares in a trading company that you intend to sell
  • You are a contractor or freelancer with a personal service company (PSC) and plan to close it

For example, take a director in Birmingham who owns 100% of a software consultancy. They sell the company for £800,000 in May 2026. Their gain is £790,000 after the annual exempt amount. Under the 14% rate (April 2025 to April 2026), the tax would be £110,600. Under the 18% rate from April 2026, the tax jumps to £142,200. That is an extra £31,600.

That difference is real money. It could fund a new venture, a pension contribution, or a property purchase.

How the BADR 2026 Rate Change Interacts with Other CGT Rules

The BADR rate is not the only CGT change to watch. The standard CGT rates for business assets also rose in the Autumn Budget 2024. The old 10% basic rate and 20% higher rate for non-residential assets were replaced by 18% and 24% respectively from 30 October 2024.

This means that once you exhaust your £1 million BADR lifetime limit, any further gains are taxed at 18% or 24%. That is a significant jump from the old 10% and 20% rates.

For residential property, the rates are the same: 18% basic rate and 24% higher rate. The 60-day reporting requirement for UK residential property gains still applies. If you sell a buy-to-let property or second home, you must report and pay the CGT within 60 days of completion.

The BADR 2026 rate change does not affect the £1 million lifetime limit. That limit remains. What changes is the rate applied to gains within that limit.

Planning Around the BADR 2026 Rate Change

If you are considering a business exit, the window between 6 April 2025 and 5 April 2026 is your opportunity to use the 14% rate. After that, the rate rises to 18%.

Here are the practical options to consider.

Bring Forward Your Exit

If your business is ready for sale and you can complete the transaction before 6 April 2026, you lock in the 14% rate. That is a 4% saving on gains up to £1 million.

For a £500,000 gain, the saving is £20,000. For a £1 million gain, the saving is £40,000.

This only works if the sale is genuinely ready. Rushing a sale to hit a tax deadline can backfire if you accept a lower price or miss due diligence issues.

Use the Annual Exempt Amount

Each individual has an annual CGT exempt amount. For 2025/26, that is £3,000. You can crystallise gains up to that amount each year tax-free. If you hold shares in your company, you could sell a portion each year to use the exemption, then reinvest or hold the cash.

This is most practical if you have a minority stake or are selling down gradually. For a full business sale, it rarely works because buyers want 100% control.

Transfer Shares to a Spouse

You can transfer shares to your spouse tax-free (the no gain/no loss rule). They then have their own £1 million BADR lifetime limit and their own annual exempt amount. This effectively doubles the relief available to a couple.

There are conditions. The shares must be held for at least 2 years before disposal. The spouse must also meet the 5% shareholding and voting rights test. And the transfer must be genuine, not a tax avoidance scheme.

If you are a husband-and-wife team running a limited company in Leeds, this is worth discussing with your accountant. It can save significant tax on a joint exit.

Consider a Share Buyback

If you want to extract value from your company without selling to a third party, a share buyback can work. The company purchases your shares. This counts as a disposal for CGT purposes and can qualify for BADR if the conditions are met.

Share buybacks are more complex than a straightforward sale. They require distributable reserves, shareholder approval, and compliance with Companies Act 2006 rules. Professional advice is essential.

Use Pension Contributions to Offset Gains

If you have made a gain and want to reduce the tax, pension contributions can help. Contributions to a registered pension scheme attract tax relief at your marginal rate. For a higher rate taxpayer, a £40,000 contribution costs £24,000 net and adds £40,000 to your pension pot.

This does not reduce the CGT directly. But it reduces your overall income tax bill, which can free up cash to pay the CGT. It is a timing and cashflow strategy, not a direct avoidance method.

What About Closing a Limited Company?

If you are closing your limited company rather than selling it, the rules differ. A formal winding up (Members' Voluntary Liquidation or MVL) treats distributions as capital, not income. That means they are subject to CGT rather than income tax and dividend tax.

BADR can apply to the distributions from an MVL, as long as the company is a trading company and you meet the 5% shareholding and 2-year holding conditions. The BADR 2026 rate change applies here too. If you close your company after 6 April 2026, the gain on the distributions is taxed at 18% rather than 14%.

An MVL is more expensive than a simple strike-off (dissolution). But for companies with significant retained profits, the CGT treatment under BADR usually beats paying income tax on dividends. The numbers need to stack up for your specific case.

For a contractor in Manchester with £100,000 retained in their PSC, the difference between an MVL with BADR and a strike-off (where funds are treated as dividends) can be substantial. The MVL route saves thousands in tax, even after the professional fees.

What Does Not Change in the BADR 2026 Rate Change

Some things stay the same. The £1 million lifetime limit remains. The qualifying conditions for BADR are unchanged. You still need to hold at least 5% of the shares and voting rights in a trading company for at least 2 years. The company must be a trading company (not an investment company or one holding significant non-trading assets).

The rules around associated companies and the 5% test also remain. If you hold shares through a trust or another company, the attribution rules can affect your eligibility. This is a complex area where professional advice is essential.

For unincorporated businesses (sole traders and partnerships), the same conditions apply. You must have owned the business for at least 2 years and the disposal must be of the whole or part of the business.

What Should You Do Now?

If you are planning a business exit within the next 2 years, the BADR 2026 rate change is a factor you cannot ignore. Here is a practical checklist.

  • Review your timeline. When do you realistically plan to sell or close your business? If it is before April 2026, you lock in the 14% rate.
  • Check your BADR usage. Have you used any of your £1 million lifetime limit on previous disposals? You can check your CGT records or ask your accountant.
  • Consider your spouse. If you are married or in a civil partnership, transferring shares to use both allowances could save tax.
  • Get professional advice early. Tax planning for a business exit should start at least 12 months before the sale. Last-minute planning is less effective and more stressful.
  • Talk to your accountant about the numbers. Model the tax under both rates. Know what the difference is for your specific gain.

If your business is worth selling and you are ready, the next 12 months offer a lower tax rate. That is not a reason to sell if you are not ready. But it is a reason to start the planning process now.

For more on exit planning, see our exit and capital gains articles. If you need to check your company structure, our incorporation and structure resources cover the basics. And for a full list of the services we offer, visit our services page.

Frequently Asked Questions

What is the BADR rate from April 2026?
The BADR rate rises to 18% from 6 April 2026. It was 10% before 30 October 2024, then 14% from 6 April 2025. The 18% rate applies to disposals made on or after 6 April 2026.

Can I still get the 10% BADR rate?
No. The 10% rate ended on 29 October 2024. Disposals from 30 October 2024 to 5 April 2025 were taxed at 14%. From 6 April 2025 to 5 April 2026, the rate is 14%. From 6 April 2026, it is 18%.

Does the £1 million lifetime limit change?
No. The £1 million lifetime limit for BADR remains unchanged. What changes is the rate applied to gains within that limit.

Does BADR apply to selling a rental property?
No. BADR only applies to disposals of business assets: shares in a trading company, a business you run as a sole trader or partnership, or assets used in your business. Rental property does not qualify unless it is part of a genuine trading business (e.g., a hotel or guest house).

What happens if I sell my company shares gradually?
You can use BADR on each disposal as long as you meet the conditions at the time of each sale. If you sell some shares before April 2026 and some after, the later sales are taxed at the higher rate. The £1 million lifetime limit applies across all disposals.

Do I need an accountant to claim BADR?
You can claim BADR on your self assessment tax return yourself. But the rules are detailed and HMRC can challenge claims. An accountant can help you structure the disposal to qualify, calculate the gain correctly, and complete the return. Given the sums involved, professional advice is usually worth the cost.

If you are planning a business exit and want to discuss the BADR 2026 rate change in your specific situation, get in touch. Our ICAEW qualified team works with business owners across the UK, from Shoreditch to the Northern Quarter, helping them plan exits that minimise tax and maximise value.