Business Asset Disposal Relief UK —
10% CGT on Your Business Sale

For a disposal of shares, you must have: (1) held at least 5% of the ordinary share capital and at least 5% of the voting rights in the company throughout the 2 years ending on the disposal date; (2) been an employee or director (officer) of the company throughout that 2-year period; and (3) the company must have been a trading company (or holding company of a trading group) throughout that period. For a disposal of a business, you must have owned and operated the business for at least 2 years. Both tests look at the 2 years ending on the date of disposal — not when you started planning to sell.

Yes — BADR remains available in 2025, but the rate has increased. The BADR rate was 10% on disposals before 6 April 2025 and increased to 14% for disposals on or after 6 April 2025. A further increase to 18% is scheduled for 6 April 2026. The lifetime limit remains £1 million per individual. For business owners planning a sale, timing the disposal before these rate increases can produce significant tax savings — we advise on disposal timing as part of our pre-sale planning service.

Goodwill is a chargeable asset — gains on its disposal are subject to CGT. If goodwill is sold as part of a qualifying business disposal (either a share sale or an asset sale of a qualifying business), BADR can apply to reduce the CGT rate to 10%. However, for asset sales (as opposed to share sales), HMRC has specific rules restricting BADR on goodwill sold to a close company if the seller is connected to that company — an anti-avoidance measure introduced in 2015. We advise on the BADR treatment of goodwill in all business disposals.

Yes — if your spouse also holds shares in the company and meets the BADR qualifying conditions in their own right (5% shareholding, officer/employee status, 2-year qualifying period), they can claim BADR separately on their own gain with their own £1 million lifetime limit. Structuring the shareholding to utilise both spouses’ BADR lifetime limits can effectively double the amount of gain eligible for the 10% rate. We review spousal shareholdings and advise on any pre-sale transfers to maximise BADR utilisation.

BADR requires the company to be a trading company (or holding company of a trading group). A company with significant investment assets — property held for investment, large cash holdings or a significant portfolio of investments — may fail the trading test and be disqualified from BADR entirely. HMRC applies a ‘wholly or mainly’ test — if more than 20% of the company’s activities (by reference to income, assets, time or management attention) are non-trading investment activities, BADR is at risk. We review the trading vs investment split well in advance of any planned disposal and advise on restructuring to protect BADR eligibility where needed.

A shareholder must hold at least 5% of the ordinary share capital AND at least 5% of the voting rights throughout the 2 years before disposal. Option holders do not count as shareholders until they exercise their options. If employee share option grants or investment funding rounds have diluted below 5%, BADR is unavailable. We track shareholding percentages for all director clients and alert them if they’re approaching or below the 5% threshold.

BADR requires the individual to have been an employee or officer (director) of the company throughout the 2 years ending on the date of disposal. A director who resigned 18 months before the sale fails this test. We advise on the timing of any planned changes to director status relative to a planned sale — ensuring the qualifying period is preserved.

The BADR rate increases from 10% to 14% from April 2025 and 18% from April 2026. For a £500,000 gain, completing a disposal in March 2025 (10% rate) rather than May 2025 (14% rate) saves £20,000 in CGT. For business owners with flexibility on disposal timing, we model the tax cost of different completion dates and advise on the optimal timing window.

BADR conditions for asset sales (selling the business assets, not the company shares) are different from share sales. The assets must have been used in the business throughout the 2 years before cessation, and the assets must be sold in connection with the withdrawal from the business. For associated disposal of assets used in a partnership or company, additional conditions apply. We assess BADR for both share and asset disposals.