What is the BADR lifetime limit?

undefined The £1M lifetime limit was reduced from £10M in March 2020. It's a per-individual limit, not per-disposal. If you've previously claimed Entrepreneurs' Relief/BADR, those gains count against your £1M lifetime allowance. Married couples can each claim BADR on their own gains, so a couple could potentially shield £2M at the 10%/14%/18% rate. A spouse who is a co-shareholder and officer/employee can claim independently. Relevant legislation: TCGA 1992 s.169I(6) — lifetime limit of £1M.. Example: A founder who previously claimed £300,000 of Entrepreneurs' Relief in 2018 has £700,000 of BADR lifetime limit remaining. Any gains above £700,000 will be taxed at the standard 24% rate. Common mistake: Assuming the limit is per-disposal. It's a lifetime limit — all previous claims count against it. Always check your BADR history before planning a sale.

Can I claim BADR if my company has investment activities?

undefined To qualify for BADR, the company must be a trading company or the holding company of a trading group. HMRC looks at a range of factors including the level of non-trading assets, non-trading income, and the time spent by management on non-trading activities. There is no statutory threshold, but the '20-30% rule' is a useful guideline. If non-trading activities are material, we can often restructure the company (e.g., hive up investment assets) before the sale to protect BADR eligibility. This must be done well in advance of the disposal. Relevant legislation: TCGA 1992 s.169I(7) — 'trading company' means a company carrying on trading activities that do not include to a substantial extent activities other than trading activities.. Example: A company with 70% trading turnover and 30% investment property income was at risk of failing the trading test. We advised hiving up the investment property to a separate company 18 months before the planned sale, preserving BADR on the trading company shares. Saving: £140,000. Common mistake: Selling shares without checking the trading company status. If HMRC later determines the company was not a trading company, BADR is denied and the full 24% rate applies, plus interest.

Tax Advisory

Business Asset Disposal Relief (BADR)

How to qualify for and claim Business Asset Disposal Relief (formerly Entrepreneurs' Relief) to reduce CGT to 18% on business sales.

Quick Answer

Business Asset Disposal Relief (BADR) reduces the CGT rate from 24% to 18% on qualifying business disposals, up to a £1M lifetime limit. This can save up to £60,000 in CGT on a £1M gain compared to the standard 24% rate. To qualify, you must have been an officer or employee of a trading company, held at least 5% of shares (by value and voting rights), and met the 2-year holding period before disposal. The rate was 10% before April 2025, 14% in 2025-26, and 18% from April 2026 onwards.

What is BADR and How Much Can You Save?

BADR (formerly Entrepreneurs' Relief) is the most valuable CGT relief for business owners. From April 2026, it reduces the CGT rate on qualifying business disposals from 24% (higher rate) to 18%, up to a £1M lifetime limit per individual. On a £1M gain, this saves £60,000 compared to the standard 24% rate.

The rate was 10% before April 2025, increased to 14% from April 2025, and increased again to 18% from April 2026. This makes timing critical — completing a sale before the rate increases can save up to 8% in CGT compared to selling after April 2026.

Qualifying Conditions for BADR

To claim BADR on the sale of shares in a trading company, ALL of the following conditions must be met throughout a continuous period of at least 2 years ending on the date of disposal:

The company must be a trading company (or the holding company of a trading group) — investment companies do not qualify
You must be a company officer (director or secretary) or employee
You must hold at least 5% of the ordinary share capital (by nominal value)
You must hold at least 5% of the voting rights
AND either: 5% of the economic entitlement to profits/assets on winding up, OR 5% of proceeds on a company sale (the 'personal company' test)

The April 2025/2026 Rate Changes

The Autumn Budget 2024 announced BADR rate changes that have significantly impacted business sale planning:

The BADR rate increased from 10% to 14% from 6 April 2025, and to 18% from 6 April 2026. On a £1M gain, selling after April 2026 costs an additional £80,000 in CGT compared to selling before April 2025. For business owners contemplating a sale, the timing of completion should be a key consideration.

Note: the £1M lifetime limit remains unchanged. Only the rate has increased.

Relevant Legislation

BADR is governed by TCGA 1992 s.169I. The qualifying conditions for shares in a personal company are in s.169I(6). The trading company requirement is in s.169I(7). Rate changes: FA 2024-25 (BADR rate to 14% from April 2025, 18% from April 2026).

Practical Example

A founder selling company shares with a £900,000 gain in March 2025 (10% BADR rate) paid £90,000 CGT. If the same sale had been completed in May 2026 (18% rate), the CGT would have been £162,000 — a difference of £72,000. We advised the client to accelerate completion to before April 2025, saving £36,000 compared to the April 2025 rate and £72,000 compared to the April 2026 rate.

Common Mistake

Not checking the trading company status before selling. Many companies have a mix of trading and investment activities — if the non-trading activities are substantial, HMRC may argue the company is not a 'trading company' and deny BADR. This can cost hundreds of thousands of pounds. Another common mistake is holding shares for less than 2 years before disposal — the 2-year period must be continuous and end on the date of disposal.

Frequently Asked Questions

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Frequently Asked Questions

Detailed answers with legislation references, practical examples and common pitfalls.

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