Business Asset Disposal Relief (BADR) 2026/27: 18% CGT Rate

Business Asset Disposal Relief (formerly Entrepreneurs' Relief) provides an 18% CGT rate on qualifying gains up to a £1 million lifetime limit. This guide covers the qualifying conditions, worked examples, and the key risks that can disqualify you.

Last updated July 2026 for the 2026/27 tax year. The 18% rate applies to disposals on or after 6 April 2026.

What is Business Asset Disposal Relief?

BADR (previously Entrepreneurs' Relief until April 2020) reduces the CGT rate on qualifying gains from business disposals. Standard rates in 2026/27 are 18%/24%. BADR cuts that to 18% — regardless of whether you are a basic or higher-rate taxpayer — on qualifying gains up to the lifetime limit.

The BADR rate was 10% from 2020 until 5 April 2025, rose to 14% from 6 April 2025, and rose again to 18% from 6 April 2026. The disposal date determines which rate applies: 14% for disposals between 6 April 2025 and 5 April 2026; 18% for disposals on or after 6 April 2026.

Qualifying conditions for shares in a personal company

The most common route to BADR is shares in a personal trading company. All the following must be satisfied throughout the two years immediately before disposal:

• You hold at least 5% of the ordinary share capital
• Those shares carry at least 5% of the voting rights
• You are entitled to at least 5% of distributable profits and 5% of assets on winding up
• You are an officer (director) or employee of the company
• The company is a qualifying trading company or the holding company of a trading group

The two-year qualifying period is strict. Set up and sell a company within 18 months — no BADR. Become a director less than two years before sale — no BADR, even if you held the shares for longer. The two-year clock runs to the disposal date.

The trading company requirement

The company must be a trading company. Its activities must be substantially trading rather than investment. HMRC applies a broadly 80% test: at least 80% of assets, income and activities should be trading rather than investment-related.

Cash-rich companies can fail this test. Retaining large profits as cash, or holding investment properties alongside trading, can push the investment element above the threshold. Common triggers include:

• Holding significant investment properties in addition to trading
• Substantial surplus cash built up over years (beyond normal working capital)
• Substantial investment portfolio within the company

If your company is cash-rich before sale, take professional advice on whether to extract the cash as a pre-sale dividend (paying income tax) to preserve trading status for BADR. It is a trade-off between paying income tax on the dividend now versus losing the 18% BADR rate later.

Dilution below 5%: protecting your BADR eligibility

Dilution below 5% through a new share issue is a common risk. A funding round that issues new shares to investors can take you from 8% to 4%, and you lose BADR eligibility immediately.

HMRC provides an anti-dilution election for this situation. Where shares are diluted below 5% due to a qualifying commercial share issue, you can elect to be treated as having disposed of and reacquired the shares at market value at the point of dilution. This crystallises a gain while BADR still applies. The election must be made within the Self Assessment deadline.

If you are about to raise investment that will dilute your holding below 5%, model the position carefully. Making a BADR election before the dilution can be significantly better than selling after it.

Worked example

Sarah founded a marketing agency in 2020 and has owned 60% of the shares throughout. In 2026/27, she sells all her shares for £900,000. Her original subscription cost was £5,000. She has not previously used any BADR lifetime limit.

Note: BADR gains are not reduced by the annual exempt amount. The AEA is separate. Sarah should claim BADR on her Self Assessment return for 2026/27.

Other qualifying assets

BADR also applies to:

• Sole trader or partnership assets, disposal of all or part of a business run as a sole trade or partnership, where the assets have been used in the business
• Associated disposal, disposal of a personal asset (e.g. business premises you own personally but used by the company) at the same time as a qualifying company disposal
• Trustees, gains from trusts holding qualifying business assets, subject to specific rules

Frequently asked questions

This page is for general information only. BADR conditions are complex, take qualified tax advice before a business disposal to confirm eligibility and structure the transaction correctly.