Selling your business: CGT and BADR guide

Business Asset Disposal Relief (BADR)

Business Asset Disposal Relief (BADR, formerly Entrepreneurs' Relief) taxes qualifying business disposals at a reduced CGT rate instead of the standard rate. The relief applies to the first £1,000,000 of qualifying lifetime gains. Gains above the lifetime limit, or gains that do not meet the qualifying conditions, are taxed at the standard CGT rate.

The rate change at 6 April 2026

This is the most time-critical planning point for anyone approaching a sale:

Disposals before 6 April 2026: BADR rate = 14%
Disposals on or after 6 April 2026: BADR rate = 18%

On a £500,000 gain that qualifies in full for BADR, the difference is £20,000 in additional tax. On larger gains the difference is proportionately greater. The completion date (not exchange) determines which rate applies.

Standard CGT rates for business disposals

Gains that do not qualify for BADR (or the portion above the £1m lifetime limit) are taxed at:

24% for higher and additional rate taxpayers (the rate applying to business asset gains since October 2024)
The annual exempt amount is £3,000 in 2026/27

Residential property disposals use different rates (18% basic, 24% higher) but are not the subject of this guide.

Who qualifies for BADR

To qualify for BADR on the sale of a business, the conditions must be met for at least two years before disposal:

The business must have been a trading company (or holding company of a trading group), not mainly an investment company.
The individual must be a director or officer, or an employee, of the company.
The individual must own at least 5% of the shares and 5% of the voting rights in the company.
Those shares must give the individual entitlement to at least 5% of the distributable profits and 5% of the assets on a winding up.

Share dilution below 5% from a funding round can disqualify the relief unless an election was made before the dilution. This is a specialist area that should be reviewed before issuing new shares.

Worked example

Item	Before 6 Apr 2026	On/after 6 Apr 2026
Sale proceeds	£600,000	£600,000
Original cost	£100,000	£100,000
Capital gain	£500,000	£500,000
BADR-eligible (under £1m limit)	£500,000	£500,000
BADR rate	14%	18%
Total CGT	£70,000	£90,000
Net proceeds	£530,000	£510,000
Extra tax from timing	£20,000

The structure of the transaction changes the tax position materially:

Share sale: you sell the shares in the company. The gain is at the shareholder level; BADR can apply to the whole gain if conditions are met. Buyers typically prefer asset sales (they acquire a clean entity without hidden liabilities).
Asset sale: the company sells its assets (plant, goodwill, contracts). The gain sits inside the company and is subject to corporation tax. Extracting the proceeds then involves a further tax charge (dividend, or MVL). BADR does not apply at the corporate level.

Sellers usually prefer a share sale; buyers usually prefer an asset sale. The price negotiation often reflects this preference. A specialist models both scenarios before you enter heads of terms.

60-day reporting for residential property

This guide covers business disposals. If your exit involves selling a property that is not your main residence, you must report the disposal and pay CGT within 60 days of completion. Missing this deadline triggers automatic penalties.

MBOs and earn-outs

Management buyouts and deals with earn-out provisions (where part of the price is paid over future periods linked to performance) have their own CGT and timing rules. An earn-out paid in cash is generally assessed on receipt; one paid in securities may be assessed on different terms. These need specialist input before heads of terms are finalised.