Are you selling your business in 2025/26? If so, you could pay just 14% capital gains tax on the first £1 million of profit, thanks to Business Asset Disposal Relief (BADR). That is a 6 percentage point saving against the standard 20% rate for higher-rate taxpayers, and it is the lowest BADR rate ever offered.
BADR applies when you dispose of shares in a personal trading company or sell business assets as a sole trader or partnership. You must have owned the business and been an employee or officer for at least two years before the disposal. The relief is a lifetime allowance: once you have used £1 million of qualifying gains, any further gains are taxed at normal rates. The £1 million limit has been frozen since March 2020, so inflation has already eroded its real value.
A common trap catches owner-managers who hold shares through a nominee or a holding company structure. To qualify, you must hold at least 5% of the ordinary share capital and voting rights directly, and be entitled to at least 5% of distributable profits and assets on a winding up. If you have a separate holding company that owns your trading subsidiary, HMRC may treat that as a disqualifying intermediary. Check your share register now, not the week before exchange.
Consider a practical example. A software company director sells 100% of her shares for £1.8 million. Her base cost is negligible, so the gain is £1.8 million. After deducting the annual exempt amount of £3,000, the first £1 million of gain is taxed at 14% (BADR) and the remaining £797,000 at 20%. The total CGT bill is £140,000 plus £159,400, equalling £299,400. Without BADR, the entire gain would be taxed at 20%, costing £359,400. The relief saves £60,000. If the same sale happened after 5 April 2026, the BADR portion would be taxed at 18%, reducing the saving to £40,000.
BADR also covers disposals of goodwill and certain business assets for sole traders and partnerships. But beware: if you sell goodwill to a company you control, the relief is specifically denied. That structure was common before 2015 and HMRC now treats it as a tax avoidance arrangement. You should also note the "significant commercial interdependence" rule if you run multiple businesses through separate companies. HMRC may treat them as a single business for the two-year qualifying period test, which can help or hinder depending on your facts.
From 6 April 2026, the BADR rate rises to 18%. The 2025/26 tax year is therefore the last chance to use the 14% rate. If you are planning an exit, now is the time to review your share structure, ensure you meet the 5% tests, and consider whether a full sale or a staged disposal better suits your tax position. BADR applies only to disposals that transfer control of the whole business, so selling shares in tranches over several years may not qualify.
For UK business owners across all sectors, BADR is the single most powerful tax relief on exit. A properly timed and structured sale can save five figures or more. With the rate rising in under 12 months, the window for the lowest ever rate is closing fast.