What Is BADR and Why Does It Matter Across Tax Years?
Business Asset Disposal Relief (BADR) lets you pay a lower rate of Capital Gains Tax when you sell shares in your trading company. The old Entrepreneurs' Relief was replaced by BADR in April 2020, but the core principle stayed the same: a £1m lifetime limit of gains taxed at a reduced rate.
The rate changed significantly from 6 April 2025. For disposals before that date, the BADR rate was 10%. From 6 April 2025, it rose to 14%. And from 6 April 2026, it will rise again to 18%. If you sell shares across multiple tax years, you need to calculate how much of your £1m limit you've used in each year, and apply the correct rate to each tranche.
This matters most when you plan a partial sale of your company, or when you sell shares in stages to manage your tax bill. Get the calculation wrong and you could overpay CGT by tens of thousands of pounds.
The £1m Lifetime Limit: How It Works Across Years
BADR gives you a lifetime limit of £1m of gains. This is not an annual allowance. Every pound of gain you claim BADR on reduces the remaining limit permanently.
Here is a worked example. Say you sold 30% of your shares in June 2024 and realised a gain of £400,000. You claimed BADR on that gain at the old 10% rate. Your remaining BADR allowance is now £600,000.
In October 2025, you sell the rest of your shares and realise a gain of £800,000. You can only claim BADR on £600,000 of that gain, at the 14% rate. The remaining £200,000 is taxed at the standard CGT rate for 2025/26: 18% for basic rate taxpayers or 24% for higher rate taxpayers.
You must track this limit yourself. HMRC does not send you a statement of your remaining BADR allowance. Your self assessment tax return (SA100) records each claim, and HMRC will check your cumulative usage when they process your returns.
The Two-Year Holding Period: Timing Your Disposals
To qualify for BADR, you must meet the conditions for at least two years before the disposal. For shares in a trading company, you need to be an employee or officer of the company, and the company must be a trading company (or the holding company of a trading group).
If you sell shares in stages, each disposal is tested separately against the two-year rule. You do not need to re-qualify from scratch for each sale, as long as you have continuously met the conditions since the first qualifying date.
Here is the practical point. If you sell 20% of your shares in year one and 80% in year three, the second disposal still qualifies for BADR as long as you have been an employee or officer for the full period. The two-year clock starts ticking from the first day you met all conditions.
Calculating BADR Relief When Rates Change Mid-Plan
The rate changes on 6 April each year. If your disposals span 5 April 2025 and 6 April 2025, you apply different rates to each disposal even if they are only one day apart.
Consider a director of a Manchester-based software consultancy turning over £420,000. She wants to sell her shares in two tranches: one in March 2025 and one in June 2025. The March disposal uses the 10% BADR rate. The June disposal uses the 14% BADR rate. She must track her £1m limit across both disposals, applying the correct rate to each.
If she sells £500,000 of gains in March 2025 at 10%, that uses £500,000 of her £1m limit. If she then sells £700,000 of gains in June 2025, only £500,000 of that gain qualifies for BADR at 14%. The remaining £200,000 is taxed at standard CGT rates.
The total CGT calculation looks like this:
- March 2025: £500,000 x 10% = £50,000
- June 2025: £500,000 x 14% = £70,000 (within remaining limit)
- June 2025: £200,000 x 24% = £48,000 (standard higher rate CGT)
- Total CGT: £168,000
If she had sold all shares in March 2025, the full £1.2m gain would have been taxed at 10% on the first £1m and 20% on the remaining £200,000 (the old standard higher rate). Total: £100,000 + £40,000 = £140,000. The timing cost her an extra £28,000.
This is not necessarily a bad outcome. She may have had commercial reasons for the staggered sale. But the numbers show why planning across tax years matters.
Partial Disposals and the Apportionment of Base Cost
When you sell shares across multiple tax years, you do not sell the same shares each time. You sell a proportion of your holding. This means you must apportion your base cost (what you originally paid for the shares) across each disposal.
The standard method is the pooling rules. Shares of the same class in the same company are treated as a single pool. Each disposal takes a proportionate share of the pool's base cost.
Here is a worked example. You bought 1,000 shares for £10,000 (base cost of £10 per share). You sell 300 shares in year one. The base cost attributed to that sale is 300 x £10 = £3,000. Your remaining pool has 700 shares with a base cost of £7,000.
If the company has grown in value, each share is worth more at the time of each sale. The gain on the first sale is (sale proceeds minus £3,000). The gain on the second sale is (sale proceeds minus £7,000).
You report each disposal on the capital gains pages of your self assessment return (SA100 supplementary pages). Each disposal is a separate entry, with its own gain calculation and BADR claim.
What Happens If You Exceed the £1m Limit
If your total gains across all tax years exceed £1m, the excess is taxed at standard CGT rates. There is no way to extend the £1m limit. It is a hard cap per individual.
Spouses and civil partners each have their own £1m limit. If you and your spouse both hold shares in the same company, you can each claim BADR on up to £1m of gains. This is a legitimate planning route, but you must hold the shares in your own name and meet the qualifying conditions individually.
If you gift shares to your spouse before a sale, the two-year holding period is met by combining both your holding periods. This is a well-established rule under the spousal transfer provisions in TCGA 1992 s.58.
Reporting BADR Claims on Your Tax Return
You claim BADR on the capital gains pages of your self assessment return. The relevant box asks for the amount of gain on which you are claiming the relief. You enter the gain amount, not the tax saved.
If you have disposals across multiple tax years, you file a separate return for each year. Each return records the BADR claim for that year's disposals. HMRC matches the cumulative total against your £1m limit when they process the returns.
Keep a running record of your BADR claims. A simple spreadsheet showing the date of each disposal, the gain, the BADR rate applied, and the remaining allowance is enough. You will need this if HMRC opens an enquiry into any of your returns.
BADR and the 2026 Rate Rise: What to Do Now
The BADR rate rises to 18% from 6 April 2026. If you are planning to sell shares, the timing of your disposal matters significantly.
Selling in the 2025/26 tax year saves you 4% compared to selling in 2026/27. On a £1m gain, that is a £40,000 difference.
But do not rush a sale purely for tax reasons. The commercial terms of the sale matter more. A slightly lower price in 2026/27 could wipe out the tax saving. Take advice from your corporate finance adviser and your accountant together.
If you are considering a partial sale, the badr relief multiple tax years calculation becomes critical. You need to map out the gain in each year, the rate applicable, and the remaining lifetime limit. A small error in the apportionment of base cost can throw the whole calculation off.
Common Mistakes When Calculating BADR Across Years
Three mistakes come up repeatedly in our work as ICAEW qualified accountants.
Mistake one: forgetting the two-year rule resets for new shares. If you acquire new shares after the first sale, those new shares have their own two-year clock. You cannot claim BADR on them until two years after acquisition, even if you already held shares in the same company.
Mistake two: assuming the £1m limit resets each year. It does not. It is a lifetime limit. Once you use it, it is gone.
Mistake three: using the wrong base cost for partial disposals. If you sell 50% of your shares, you do not automatically use 50% of your original cost. You use the pooling rules to calculate the exact base cost attributable to the shares sold. This matters most when you bought shares at different times and different prices.
When to Get Professional Help
If your disposals span more than two tax years, or if you are selling shares in a company that has changed its trading status, or if you have previously claimed Entrepreneurs' Relief or BADR on other assets, you should speak to a qualified accountant before completing the sale.
The calculation is not complex in principle, but the stakes are high. A mistake in the badr relief multiple tax years calculation can cost you tens of thousands in unnecessary tax.
Our team at Holloway Davies can help you model the tax impact of different sale timings and structures. We work with directors across the UK, from Shoreditch startups to Birmingham manufacturing businesses and Edinburgh professional practices. Contact us to discuss your situation.
You can also read more about exit planning and capital gains on our blog, or check our online calculators to estimate your potential CGT bill.