Business Asset Disposal Relief: Act Now or Pay More Later
- Omar Aswat
- Jan 14, 2025
- 5 min read
Updated: Dec 23, 2025
Business Asset Disposal Relief (BADR), previously called Entrepreneurs’ Relief, provides valuable tax relief to UK business owners. If you’re planning to sell or dispose of business assets, understanding how BADR works and the upcoming changes to the relief rates is essential for effective tax planning.
In this article, we cover the basics of BADR, eligibility criteria, forthcoming rate changes, and a case study illustrating the financial impact of selling now versus later.
Table of Contents
What is Business Asset Disposal Relief?
Business Asset Disposal Relief (BADR) allows UK business owners to pay a reduced rate of Capital Gains Tax (CGT) when selling or disposing of qualifying business assets. This relief encourages entrepreneurship by offering tax benefits to business owners exiting their ventures. For more details, visit the HMRC official guidance on BADR.
Currently, BADR enables individuals to pay a reduced CGT rate of 10% on the first £1 million of qualifying gains over their lifetime. The standard CGT rates, which are typically higher, apply to any gains above this threshold. Qualifying assets include:
Shares in a trading company
Assets in a partnership
Business assets held by a sole trader
While BADR remains a critical tool for business owners, the benefits have diminished over the years, and upcoming rate changes will further impact its value.
Eligibility for Business Asset Disposal Relief
To qualify for Business Asset Disposal Relief, certain conditions must be met. It’s essential to understand these requirements to determine whether you can benefit from the relief:
Ownership: You must be a sole trader, partner, or own at least 5% of the shares and voting rights in a company.
Trading Business: The business must be a trading business. It should not primarily be engaged in investment activities, such as holding rental properties or financial trading.
Two-Year Ownership Period: The Business or asset must have been owned for at least two years (or 24 months) before the disposal to qualify for the relief.
Lifetime Limit: The maximum amount of gains that can benefit from BADR is £1 million over the course of your lifetime. Once this limit is reached, any future disposals are subject to standard CGT rates. Learn more about the Capital Gains Tax rules on the UK Government website.
Sale of Assets: BADR applies to the sale of qualifying assets, which include shares in a trading company, assets of a sole trader’s business, or assets in a partnership.
Complying with these requirements often involves complex considerations.
Changes to Business Asset Disposal Relief Rates
While BADR has been a key tax break for many entrepreneurs, the Labour government is making adjustments to the rates over the coming years. These changes will affect those who plan to sell or dispose of their business assets in the near future. For updates on tax policy changes, visit the UK Government’s budget publications page.
Upcoming Rate Increases:
10% to 14% from 6 April 2025
14% to 18% from 6 April 2026
These changes will result in higher taxes for disposals occurring after these dates. Acting before 6 April 2025 could result in substantial savings.
Case Study: Selling Now vs. Later
Let’s take a closer look at how these upcoming rate changes could affect a business owner’s tax bill as a hypothetical example.
Scenario Overview
Hester is the owner of a successful software development company, and she is considering selling her business.
Let’s explore how these changes could affect a business owner’s tax liability.
Ownership Duration: 10 years
Projected Gain: £2 million
Lifetime Limit: No previous BADR use
Tax Implications in 2024 (Current BADR Rate)
Currently, Hester qualifies for BADR at the 10% rate on the first £1 million of her gain, and the remaining gain will be taxed at the standard CGT rate of 20% for higher-rate taxpayers.
First £1 million: Taxed at 10%.
Tax on first £1 million = £1,000,000 × 10% = £100,000
Remaining £1 million: Taxed at 20%.
Tax on remaining £1 million = £1,000,000 × 20% = £200,000
Total Tax Liability = £100,000 + £200,000 = £300,000
If Hester sells her business in 2024, she will pay a total of £300,000 in tax.
Tax Implications in 2025 (Post-Change in BADR Rate)
If Hester waits until after 6 April 2025, the BADR rate will increase to 14%.
First £1 million: Taxed at 14%.
Tax on first £1 million = £1,000,000 × 14% = £140,000
Remaining £1 million: Still taxed at 20%.
Tax on remaining £1 million = £1,000,000 × 20% = £200,000
Total Tax Liability in 2025 = £140,000 + £200,000 = £340,000
If Hester waits until 2025, she will pay £40,000 more in tax.
If Hester delays the sale until after 6 April 2026, the BADR rate will rise to 18%.
First £1 million: Taxed at 18%.
Tax on first £1 million = £1,000,000 × 18% = £180,000
Remaining £1 million: Taxed at 20%.
Tax on remaining £1 million = £1,000,000 × 20% = £200,000
Total Tax Liability in 2026 = £180,000 + £200,000 = £380,000
If Hester waits until 2026, her tax liability will increase by £80,000 compared to selling in 2024.
Comparison Summary
Key Takeaways
Timing is Crucial: Selling before 6 April 2025 locks in the 10% rate and avoids higher taxes.
Lifetime Limits Matter: Gains above the £1 million threshold are taxed at higher CGT rates, so strategic planning is essential.
Consult Professionals: Tax advisors can ensure conditions are met and help navigate complexities.
Broader Tax Planning: Consider how other reliefs, like Business Property Relief (BPR) for inheritance tax, may also impact your overall position. Explore how Business Property Relief (BPR) can reduce inheritance tax on the official government page.
Next Steps and Planning Tips
Act Early: Plan your sale well in advance to benefit from current rates.
Seek Expert Advice: The team at Aswatax, can help optimise your tax strategy through expert advice and tailored solutions.
Explore Alternatives: Other tax reliefs, such as Rollover or Gift Relief, may offer additional savings depending on your circumstances.
Stay Informed: Regularly review updates to tax regulations to adapt your plans accordingly. Stay informed about BADR and related reliefs by visiting the UK Government website.
Conclusion
Business Asset Disposal Relief remains a valuable tool for business owners, but upcoming rate increases demand immediate action. By selling assets before the changes take effect, you can significantly reduce your tax liability.
At Aswatax, we specialise in tailoring strategies to help business owners maximise reliefs and plan effectively. Contact us today to discuss your plans and explore how we can help you achieve the best outcomes.
Meet Omar
Omar is a Chartered Tax Advisor (a.k.a an expert on tax issues) and founder of ASWATAX. He regularly shares his knowledge and best advice here in his blog and on other channels such as LinkedIn.
Book a call today to learn more about what Omar and ASWATAX can do for you.
*Disclaimer: ASWATAX is a firm of Chartered Tax Advisors, and we strive to provide accurate, up-to-date tax insights. Tax laws may change, so this content is for general guidance only and not a substitute for professional advice. Seek independent tax and legal counsel before making decisions. ASWATAX is not liable for any loss from reliance on this information. Use at your own risk.
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