BADR Accountant: What a Specialist Checks Before You Sell Your Business

Business Asset Disposal Relief is worth up to £35,820 on a £600,000 gain and up to £59,820 across a full £1 million lifetime limit, against the standard 24% higher rate. It is also the relief HMRC sees claimed wrongly most often, because every condition is tested throughout a 2 year period and to the day. A BADR accountant earns their fee not by filling in the claim but by finding the condition you are about to fail while there is still time to fix it.

Holloway Davies reviews BADR eligibility for directors and business owners ahead of a sale. Below is the checklist we actually run, the conditions most often failed by owners who assumed they qualified, and the deadlines that turn a valid position into no relief at all. For the current rates in context, see our guide to capital gains tax rates 2025/26 and 2026/27, and to model your own numbers use our BADR CGT calculator.

What BADR Is Worth in 2026/27

BADR (formerly Entrepreneurs' Relief) taxes qualifying business disposals at 18% for disposals on or after 6 April 2026, up to a £1 million lifetime limit per individual. The rate was 14% for 2025/26 and 10% before 6 April 2025; the increases were legislated at Autumn Budget 2024 and the 18% rate is now in force. The history and the timing rules around the change belong to our companion piece on the BADR 2026 rate change; this page is about qualifying.

Without BADR, gains are taxed at the standard CGT rates: 18% within your unused basic rate band and 24% above it, with a £3,000 annual exempt amount. Take a director selling her trading company shares for a qualifying gain of £600,000. After the £3,000 exempt amount the chargeable gain is £597,000:

• With BADR: £597,000 at 18% = £107,460.
• Without BADR (higher rate taxpayer): £597,000 at 24% = £143,280.

The relief is worth £35,820 on that sale. The 6 point gap is narrower than it was when BADR sat at 10%, but on any six-figure gain it still comfortably pays for the professional time spent securing it.

The Two 5% Tests, and the Proceeds Alternative Most People Miss

For a share sale, the company must be your personal company throughout the 2 years ending with the disposal. That means two things at once:

• Limb one: you hold at least 5% of the ordinary share capital and at least 5% of the voting rights.
• Limb two, an either/or economic test: you are entitled to at least 5% of the profits available for distribution and 5% of the assets on a winding up, or you would be entitled to at least 5% of the proceeds if the whole ordinary share capital were sold at market value.

The proceeds-entitlement alternative exists because alphabet shares, preference shares and investor rights routinely distort dividend and winding-up entitlements. A founder diluted by a funding round can hold 6% of the votes but under 5% of distributable profits on paper, and still qualify through the proceeds route. Equally, the trap runs the other way: 5.1% of the shares with restricted rights in the articles can fail limb two on both alternatives. This is a documents check, not a cap-table check, and it is the first thing we read.

Spousal holdings do not aggregate. Each spouse is tested on their own shares, their own 5% and their own role, which is also why a genuine transfer between spouses well ahead of a sale can double the relief available to a couple; the mechanics sit with the rate-change planning covered in the companion article.

The EMI Exception

Shares acquired by exercising a qualifying EMI option are exempt from the 5% tests altogether. Two conditions still bite: the 2 year qualifying period runs from the grant of the option (not exercise), and the employment condition must hold throughout. An employee holding 1% through EMI can take the 18% rate on a sale where a 4% non-EMI shareholder cannot. On an exit where option holders exercise at completion, checking grant dates against the 2 year clock is a standard part of the review, and one that deal timetables regularly ignore.

Officer or Employee, Throughout, With No Gap

You must be an officer or employee of the company (or a group company) throughout the 2 years ending with the disposal. Hours and pay are irrelevant; continuity is everything. A director who resigns during a protracted negotiation and completes the sale three months later has broken the condition and there is no cure. If you resigned some time ago and are only now selling, the position depends on exactly when the disposal falls; our piece on claiming BADR after leaving a director role works through the scenarios. The practical rule we give clients: do not resign before completion, however done you feel.

Trading Status and the Substantial Non-Trading Risk

The company must be a trading company (or the holding company of a trading group) without substantial non-trading activities. HMRC's long-standing working benchmark for substantial is around 20%, applied in the round across several indicators: income, asset base, expenses, and management time devoted to non-trading activity. It is not a single mechanical ratio, which cuts both ways: a large cash balance genuinely held for the trade can be defensible, and a modest investment property portfolio can still tip a company over.

The most common version of this risk is retained cash in a service company. A consultancy with £500,000 of accumulated cash against £600,000 of total assets has a serious question to answer, and the answer needs evidence: working capital cycles, planned capital spend, board minutes. Fixes exist (pre-sale dividends, genuine reinvestment) but they need months, not days. This topic has its own detailed treatment in BADR and large cash reserves; on a review we run the balance sheet test over the whole 2 year window, not just the latest accounts.

Associated Disposals: The Personally Held Asset

If you personally own an asset the company uses, most commonly the trading premises, and you sell it as part of withdrawing from the business alongside a qualifying share sale, that associated disposal can also attract BADR. The conditions are separate and stricter than people expect: the disposal must be linked to a material disposal of shares or business interest, the asset must have been used in the business throughout the qualifying period, and relief is restricted where the company paid you rent for the asset (full market rent since 2008 means no relief on that asset). Directors who charged their company rent on the premises for years are routinely surprised by this at the point of sale. It is a standard line on our checklist precisely because nobody thinks to mention the building until heads of terms are signed.

The MVL Route, and the Phoenixing Warning

If the exit is a closure rather than a sale, a members' voluntary liquidation distributes the company's reserves as capital rather than income, and BADR can apply to those distributions if the share and trading conditions are met, with distributions generally needing to land within 3 years of cessation of trade. At 18% against dividend rates of up to 39.35%, the MVL route remains clearly worthwhile for a company with significant reserves.

The warning is the Targeted Anti-Avoidance Rule: if within 2 years of the distribution you carry on the same or a similar trade or activity, and the winding up had a main purpose of obtaining a tax advantage, the capital distribution is recharacterised as income and taxed as a dividend. A contractor who liquidates, banks the 18% treatment and starts a near-identical company six months later is the textbook target. An adviser's job here is partly the computation and partly an honest conversation about what you plan to do next. The wider comparison of exit routes, including EOT sales and trade sales, is in selling a business: tax, CGT and BADR.

The Claim, the Deadline and the Lifetime Limit Ledger

BADR is a claim, made in your self assessment return, with a hard deadline: the first anniversary of the 31 January following the tax year of the disposal. For a disposal in 2026/27, the return is due by 31 January 2028 and the claim deadline is 31 January 2029. Miss it and the gain falls back to the standard 18% and 24% rates. HMRC has no general discretion to accept a late BADR claim.

The £1 million lifetime limit is cumulative across every disposal you have ever claimed on, including old Entrepreneurs' Relief claims. Part of a proper review is reconstructing that ledger from prior returns, because relief claimed on a disposal in, say, 2019 reduces what is left today. Where a sale spans more than one tax year, or shares are sold down in tranches, the interaction of the limit, the rates and the claims needs modelling in advance; see BADR across multiple tax years.

When You Need the Specialist and When You Do Not

A clean case, a 100% shareholder-director of an obviously trading company with no prior claims and no personally held assets, can be handled by any competent accountant: check the conditions, run the numbers through the calculator, make the claim on time. Bring in specialist review when any of these apply:

• alphabet shares, preference shares, growth shares or investor rights anywhere in the capital structure;
• meaningful cash reserves, investment property or other non-trading assets on the balance sheet;
• EMI options exercising at completion;
• a personally held asset used by the business, especially where rent was charged;
• an MVL where you intend to work in the same field afterwards;
• prior disposals that have used part of the lifetime limit;
• a group structure, a holding company, or shares held via a trust.

Each of those is a place where the default answer on the tax return is wrong often enough to justify the review. On a gain of £500,000 the relief is worth £29,820 against the 24% rate; the review costs a small fraction of that.

Getting a BADR Review

The right time to check eligibility is at least 2 years before the exit, because that is the length of the qualifying window everything is tested against. The second-best time is now. Holloway Davies runs BADR readiness reviews covering the share structure, the trading status evidence, associated disposals, the lifetime limit ledger and the claim itself. If a sale or an MVL is on your horizon, get in touch before you sign anything.