Business Asset Disposal Relief (BADR) lets you pay a lower rate of Capital Gains Tax when you sell shares in your trading company. But the relief has a £1m lifetime limit. If you sell shares across two or more tax years, you need to track how much of that allowance you have used and how much remains.

This is not a theoretical problem. Many company directors sell shares in stages. You might sell 40% of your holding one year and the rest later. Or you might sell shares in your company, then later sell shares in a second qualifying business. Each sale uses up part of your £1m BADR allowance.

As ICAEW qualified accountants, we work with business owners who need to calculate BADR relief across multiple tax years. The rules are specific and the timing matters. Get it wrong and you could overpay CGT by thousands of pounds.

What is BADR and How Does the £1m Limit Work?

BADR (formerly Entrepreneurs' Relief) reduces the CGT rate on qualifying gains to 14% for disposals made between 6 April 2025 and 5 April 2026. From 6 April 2026, the rate rises to 18%. For disposals before 6 April 2025, the rate was 10%.

The relief applies to the first £1m of qualifying gains you make in your lifetime. Every pound of gain above that £1m limit is taxed at the standard CGT rate: 18% for basic rate taxpayers and 24% for higher rate taxpayers (non-residential assets).

The £1m limit is a lifetime allowance, not an annual one. It does not reset each tax year. If you use £400,000 of your BADR allowance in one year, you have £600,000 left for the rest of your life.

How Share Pooling Affects BADR Calculations

Shares in the same company are held in a single pool for CGT purposes. When you sell some of your shares, you do not sell specific certificates. You sell a proportion of your pooled holding.

This matters for BADR because the gain you realise on each sale depends on the average cost of your entire shareholding, not the cost of the specific shares you sell.

Example: You bought 1,000 shares at £10 each (£10,000 total cost). You later bought another 500 shares at £15 each (£7,500 total cost). Your pooled cost is £17,500 for 1,500 shares, giving an average cost of £11.67 per share.

If you sell 600 shares at £25 each, your gain is calculated as:

  • Sale proceeds: 600 x £25 = £15,000
  • Pooled cost: 600 x £11.67 = £7,002
  • Gain: £7,998

That gain uses £7,998 of your £1m BADR allowance. The remaining 900 shares keep their pooled cost of £10,501 for future disposals.

Calculating BADR When You Sell Across Two Tax Years

When you sell shares in one tax year and then sell more shares in a later tax year, you must track two things: the cumulative gains that qualify for BADR and the remaining lifetime allowance.

Worked example: Selling across 2024/25 and 2025/26

Sarah owns 100% of a trading company. She has 10,000 shares with a pooled cost of £50,000. In March 2025 (tax year 2024/25), she sells 3,000 shares for £150,000.

Gain calculation for 2024/25:

  • Proceeds: £150,000
  • Cost (3,000 x £5): £15,000
  • Gain: £135,000
  • BADR rate: 10%
  • CGT due: £13,500
  • BADR allowance used: £135,000
  • Remaining lifetime allowance: £865,000

In September 2025 (tax year 2025/26), she sells the remaining 7,000 shares for £350,000.

Gain calculation for 2025/26:

  • Proceeds: £350,000
  • Cost (7,000 x £5): £35,000
  • Gain: £315,000
  • BADR allowance remaining: £865,000
  • Full gain qualifies for BADR (315,000 < 865,000)
  • BADR rate: 14%
  • CGT due: £44,100
  • BADR allowance used: £315,000
  • Remaining lifetime allowance: £550,000

Sarah pays £13,500 in 2024/25 and £44,100 in 2025/26. Total CGT: £57,600. Without BADR, the 2024/25 gain would have been taxed at 10%/20% and the 2025/26 gain at 18%/24%. Her total saving is substantial.

What Happens If Your Gain Exceeds the Remaining Allowance?

This is where the calculation gets more complex. If your gain in a later tax year exceeds your remaining BADR allowance, only part of the gain qualifies for the lower rate.

Worked example: Exceeding the lifetime limit

David sells shares in his company over three tax years. His pooled cost is £20,000 for 10,000 shares.

Year 1 (2023/24): Sells 2,000 shares for £100,000. Gain: £96,000. BADR used: £96,000. Remaining: £904,000.

Year 2 (2024/25): Sells 3,000 shares for £300,000. Gain: £294,000. BADR used: £294,000. Remaining: £610,000.

Year 3 (2025/26): Sells 5,000 shares for £800,000. Gain: £790,000.

In Year 3, David's gain of £790,000 exceeds his remaining allowance of £610,000. The calculation splits the gain:

  • £610,000 qualifies for BADR at 14%: £85,400 CGT
  • £180,000 is taxed at standard rates (18% or 24% depending on his income): up to £43,200 CGT
  • Total CGT on Year 3 disposal: up to £128,600

David's total BADR allowance across all three years is exactly £1m. Any further share sales in future will attract standard CGT rates.

BADR and Associated Companies

If you own shares in more than one trading company, the £1m lifetime limit applies across all of them. You cannot claim £1m per company. Selling shares in Company A and later in Company B both count toward the same £1m limit.

This is a common trap. Directors who own stakes in multiple businesses often assume each company gets its own allowance. It does not. Track your cumulative gains carefully.

For more detail on how BADR interacts with company structures, see our guide to exit and capital gains planning.

BADR and Partial Disposals

Selling part of your shareholding in a single tax year is straightforward. But if you sell in stages across multiple years, each disposal is a separate chargeable event. You calculate the gain on each disposal separately using the pooled cost at the time of disposal.

The order of disposals matters. If you sell shares in Year 1 and then more in Year 2, the Year 1 disposal uses the pooled cost before the sale. The Year 2 disposal uses the updated pooled cost after the Year 1 sale.

This is why keeping accurate records of every share transaction is essential. Without them, you cannot calculate the correct pooled cost for each disposal.

How the Rising BADR Rate Affects Multi-Year Planning

The BADR rate is increasing. For disposals before 6 April 2025, the rate is 10%. From 6 April 2025 to 5 April 2026, it rises to 14%. From 6 April 2026, it rises again to 18%.

If you are planning to sell shares across multiple tax years, the timing of each sale affects your total tax bill. Selling more shares before April 2025 saves you 4% compared to selling after April 2025, and 8% compared to selling after April 2026.

But do not rush a sale purely for tax reasons. The commercial terms of the sale matter more. A slightly higher sale price in a later year can easily outweigh the tax saving from an earlier sale.

That said, if you are already planning to sell in stages, accelerating part of the sale into an earlier tax year can reduce your overall CGT bill significantly.

If your total gain across all disposals will be under £1m, you can plan to use the full allowance before the rate rises. If your gain will exceed £1m, you need to decide which portion of the gain falls in which tax year to minimise the blended rate.

Our team can help you model these scenarios. Contact us to discuss your specific situation.

Reporting BADR on Your Tax Return

You report BADR claims on your Self Assessment tax return. Each year you make a disposal, you include the gain on the SA100 form and complete the Capital Gains Tax pages (SA108).

You must enter the gain that qualifies for BADR and the amount of relief claimed. HMRC will check that your cumulative claims across all years do not exceed £1m.

If you have used BADR in previous years, you need to know your remaining allowance. HMRC does not automatically track this for you. You are responsible for maintaining your own records.

Keep a running total of every BADR claim you make. Include the date of disposal, the gain, and the amount of BADR used. This record will save you time and stress when you make future claims.

Common Mistakes When Calculating BADR Across Multiple Years

We see several recurring errors when clients calculate BADR relief across multiple tax years:

  • Assuming the £1m limit resets each year. It does not. It is a lifetime limit.
  • Forgetting to update the pooled cost after each disposal. Each sale changes the average cost of your remaining shares.
  • Ignoring associated companies. Shares in different trading companies all count toward the same £1m limit.
  • Miscalculating the gain when the disposal exceeds the remaining allowance. You need to split the gain into BADR-qualifying and non-qualifying portions.
  • Not keeping records of previous claims. Without them, you cannot prove your remaining allowance to HMRC.

If you are planning a multi-year share sale, get professional advice before you make the first disposal. The decisions you make in Year 1 affect your tax bill in Year 5.

Read our limited company tax guides for more on related topics.

Final Thoughts

Calculating BADR relief when you sell shares over multiple tax years is not complicated in principle. Track your gains, track your remaining allowance, and apply the correct rate for each tax year. The complexity comes from the details: share pooling, partial disposals, associated companies, and the rising rate structure.

If your total gains across all disposals will be under £1m, the main decision is timing. If your gains will exceed £1m, you need to plan which portion of the gain falls in which year to minimise your overall tax bill.

Either way, keep good records. And if you are unsure, speak to an ICAEW qualified accountant who understands the rules.

For a full breakdown of BADR and other capital gains reliefs, visit our glossary of tax terms.