Business Asset Disposal Relief (BADR)

Business Asset Disposal Relief (BADR) — formerly Entrepreneurs' Relief — reduces the rate of Capital Gains Tax on qualifying business disposals. Following the October 2024 Budget, the rate is rising in two stages. This guide explains who qualifies, what is changing, and how to plan around the changes.

1. What is BADR?

BADR is a CGT relief available to individuals who dispose of:

• Shares in a qualifying trading company in which they are an employee or officer with a 5%+ stake
• Assets of a sole trader or partnership business being wound up or sold
• Assets associated with a business disposal (associated disposals)

Without BADR, gains above the annual exempt amount are taxed at the standard CGT rate (18% for basic rate taxpayers, 24% for higher/additional rate taxpayers on non-residential assets from April 2024). BADR reduces the effective rate significantly, though this advantage is narrowing after the 2024 Budget.

2. The changing BADR rate

The £1 million lifetime limit was unchanged by the Budget. BADR can be used against multiple disposals over your lifetime, up to a total of £1 million of qualifying gains. Gains above £1 million are taxed at the standard CGT rate.

3. Qualifying conditions for shares in a company

To qualify for BADR on a share disposal, all of the following must apply throughout the 2-year period ending on the date of disposal:

• 5% shareholding: You must own at least 5% of the ordinary share capital of the company
• 5% voting rights: Your shares must carry at least 5% of the voting rights
• 5% of distributable profits and assets: From April 2019, shares must also entitle you to at least 5% of distributable profits and 5% of net assets on a winding-up
• Trading company: The company must be a trading company or the holding company of a trading group — not an investment company
• Employee or officer: You must be an employee or officer (e.g. director) of the company or a group company

4. Qualifying conditions for sole traders and partnerships

For a sole trader or partnership disposal, BADR applies where:

• The business has been owned for at least 2 years before disposal
• The disposal is of the whole or part of the business (not just an asset used in the business, unless it is an associated disposal)
• The business is trading (not investment-focused)

5. Associated disposals

An associated disposal is the sale of a personal asset that was used in your business (e.g. a property you owned personally but used by your partnership or company). To qualify for BADR on the associated asset:

• You must simultaneously dispose of your shares or partnership interest (or do so within 3 years)
• The asset must have been used for business purposes throughout the relevant period
• The relief may be reduced proportionally if the asset was not used exclusively for business, or if you charged rent at full market value

6. Dilution protection election

When a company raises new equity (e.g. through a venture capital funding round), your shareholding may be diluted below 5%, removing BADR eligibility for future gains. A dilution protection election allows you to make a deemed disposal at market value before dilution occurs, crystallising your BADR entitlement on the accrued gain at the current rate. The election must be made on or before 31 January following the tax year of disposal. This is a complex anti-avoidance interaction — take specialist advice before your company raises significant external capital.

7. Excluded assets and activities

BADR does not apply to:

• Investment properties (buy-to-let, let commercial property)
• Shares in investment companies or property investment vehicles
• Assets not used in a qualifying trade
• Gains above the £1 million lifetime limit
• Assets held by a pension fund or trust (different relief regimes apply)

8. How to claim BADR

BADR is claimed on your Self Assessment tax returnfor the tax year in which the disposal occurs. You must tick the BADR box and provide details of the disposal. There is a 4-year time limit from the 31 January filing deadline of the relevant tax year to make or amend the claim. HMRC may challenge the claim if the qualifying conditions are not clearly evidenced — keep documentation of your shareholding, employment/office-holding, and the nature of the company's trade.

9. BADR vs Investors' Relief

Related tools

• Capital Gains Tax calculator
• Guide: business insolvency