Business Asset Disposal Relief: The Complete 2025 Guide to Reducing Capital Gains Tax

Introduction

Selling a business is one of the biggest financial steps an entrepreneur can take. But the tax you pay on that sale can significantly impact how much money you keep. That’s where Business Asset Disposal Relief comes in. This powerful tax relief can reduce the Capital Gains Tax (CGT) rate to just 10%—and for many business owners, it means saving thousands of pounds. In this guide, you’ll learn how it works, who qualifies, how to claim it, and smart strategies to maximize your tax savings.

What Is Business Asset Disposal Relief?

Business Asset Disposal Relief (BADR), formerly known as Entrepreneurs’ Relief, is a UK tax relief that reduces the CGT rate on qualifying business disposals to 10%, up to a lifetime limit of £1 million.

If you’re selling all or part of your business, disposing of shares, or closing your business, BADR can significantly lower your tax bill.

This relief is particularly valuable because the standard CGT rate for higher-rate taxpayers can reach 20%—double the BADR rate. For business owners planning an exit, this relief can be a major financial advantage.

How Business Asset Disposal Relief Works

BADR applies to gains made when you sell or dispose of qualifying business assets. Once you meet the conditions, the gain is taxed at the reduced 10% rate, rather than standard CGT rates.

To see how much it can save, consider this example:

Real-Life Example

• You sell your business for a £600,000 gain.
• Without BADR, at a 20% CGT rate, you would pay £120,000 in tax.
• With BADR at 10%, you only pay £60,000.

Result: You keep an extra £60,000.

For business owners approaching retirement or planning succession, this relief often shapes their entire exit strategy.

Who Qualifies for Business Asset Disposal Relief?

To claim BADR, you must meet specific conditions for at least two years before the disposal date. These conditions vary slightly depending on whether you are disposing of a business, shutting one down, or selling shares.

1. Selling All or Part of a Sole Trader or Partnership Business

You must:

• Be a sole trader or business partner.
• Have owned the business for a minimum of 2 years.
• Be disposing of all or a significant part of the business.

2. Selling Shares or Securities in a Personal Company

To qualify, you must ensure:

• The company is a trading company (not mainly investment activities).
• You have owned the shares for at least 2 years.
• You are an employee or office holder (e.g., director).
• You hold at least 5% of shares and voting rights.

3. Disposing of Assets After Closing a Business

You may claim BADR when selling assets after permanently closing the business if:

• The business operated for 2 years before closing.
• The asset disposal happens within 3 years of closing.

Qualifying Assets for BADR

The following can qualify:

• Entire business or part of a business
• Shares in your personal trading company
• Business assets sold after cessation
• Assets used for business purposes, business asset disposal relief such as equipment
• Personal assets used in a partnership business

However, some assets do not qualify, including:

• Investment properties
• Shares in non-trading companies
• Assets held solely for personal use

Understanding this distinction is crucial because HMRC strictly examines whether an asset was genuinely used for business operations.

Lifetime Limit of £1 Million

BADR has a lifetime limit of £1 million in qualifying gains. Once you’ve used the allowance, you cannot claim BADR again.

Example: How the Lifetime Limit Works

• In 2022, you claimed BADR on a £600,000 gain.
• In 2025, you sell another qualifying business for a £500,000 gain.
• You can only apply BADR to the remaining £400,000, leaving £100,000 taxed at normal CGT rates.

This makes strategic planning essential, business asset disposal relief especially if you anticipate multiple disposals over time.

How to Claim Business Asset Disposal Relief

You claim BADR when filing your Self Assessment tax return.

Steps to Claim:

1. Complete the Capital Gains Tax summary (SA108).
2. Declare that you’re claiming Business Asset Disposal Relief.
3. Submit details of the disposal, including:
   • Sale date
   • Gain amount
   • Asset description
4. File your return by 31 January following the tax year of disposal.

If you miss the deadline, HMRC may still allow a late claim in specific circumstances, but it’s not guaranteed—so timing matters.

Common Mistakes That Lead to Claims Being Rejected

Many business owners assume BADR is automatic. It’s not. HMRC frequently rejects claims due to avoidable errors such as:

• Selling shares in a company that isn’t considered a trading company
• Not meeting the 5% ownership test
• Claiming for assets that were not used for business
• Failing to remain an employee or director during the qualifying period
• Closing a business and waiting too long to sell assets

Working with a tax advisor can reduce business asset disposal relief the risk of losing thousands in relief due to technical oversights.

When BADR Is Most Useful

Business Asset Disposal Relief is especially valuable in situations such as:

1. Retirement Planning

Many business owners use BADR when selling a business to fund retirement.

2. Business Succession

If passing the business to a family member or management team, BADR ensures the seller keeps more of the proceeds.

3. Exiting a Startup

Founders selling shares can significantly reduce their tax bill if the company is a qualifying trading company.

4. Closing a Business

Even when winding down the business, selling assets after closure may still qualify.

Strategies to Maximize BADR Savings

There are smart ways to ensure you get the full benefit of the relief:

1. Plan Early

Don’t wait until you’re ready to sell. Many of the qualifying conditions require two years of preparation.

2. Review Your Share Structure

Maintaining at least 5% ownership and voting rights is essential.

3. Stay an Employee or Director

If you step down too early, you could lose eligibility.

4. Keep Clear Records

HMRC may request evidence of trading activity and asset usage.

5. Time Asset Sales After Closing a Business

Selling assets too late—beyond three years—means losing eligibility.

6. Combine With Spousal Allowances

Transfers to a spouse may be tax-efficient, business asset disposal relief but only if they also meet qualifying conditions.

7. Seek Professional Tax Advice

A qualified tax advisor can help structure the sale to maximize your tax relief.

BADR vs. Other Tax Reliefs

It’s worth understanding how BADR compares to other UK reliefs:

1. Investors’ Relief

• CGT rate also 10%
• Lifelong limit: £10 million
• Designed for external investors, not company employees
• Requires shares to be held for 3 years

2. Roll-Over Relief

Defers CGT when reinvesting proceeds into new business assets.

3. Gift Hold-Over Relief

Useful when passing business assets as gifts.

Understanding the differences helps determine which relief works best depending on your selling strategy.

Practical Example: Selling a Small Limited Company

Imagine you own a small retail business structured as a limited company. You’re a director, own 100% of the shares, and the business has traded for 12 years.

You decide to sell the company for a £750,000 gain.

You Qualify Because:

• You owned the shares for more than 2 years
• You were a director
• You held over 5% of voting rights
• The company traded actively

Tax Outcome:

• CGT at 10% = £75,000
• Savings compared to 20% rate = £75,000 saved

This single relief can dramatically increase the money you keep after selling your company.

Frequently Asked Questions

1. What is the tax rate with Business Asset Disposal Relief?

BADR reduces the Capital Gains Tax rate to 10% on qualifying gains.

2. What is the lifetime limit for BADR?

You can claim the relief on up to £1 million in gains over your lifetime.

3. Can I claim BADR if I sell my business to a family member?

Yes, as long as the disposal is at market value and all qualifying conditions are met.

4. Does selling rental property qualify for BADR?

No. BADR applies to trading businesses, not investment property businesses.

5. Can employees who are not shareholders claim BADR?

No. You must own at least 5% of shares and voting rights to qualify.

Conclusion

Business Asset Disposal Relief is one of the most valuable tax reliefs available to UK entrepreneurs. With the potential to cut your tax rate to just 10%, it can save business owners thousands—or even hundreds of thousands—when selling or closing a business. Whether you’re preparing for retirement, passing the business to someone else, or planning a strategic exit, early preparation is key.