The final chapter in the life cycle of your self-employed business is to sell the business.
When you sell all or part of your business, you’ll pay capital gains tax (CGT) on the profits made from this sale. To reduce the impact of CGT on these kinds of disposals, relief is available through Business Asset Disposal Relief (previously known as Entrepreneurs’ Relief).
What BADR is, how the relief works and who’s eligible to make a claim
What is Business Asset Disposal Relief?
Business Asset Disposal Relief is a statutory UK tax relief that reduces the standard rate of CGT on qualifying business sales or asset disposals – up to a £1 million lifetime limit – for eligible sole traders, business partners and key employee shareholders.
How does BADR work?
When you dispose of your business, or certain assets belonging to the business, you may be able to pay less CGT by making use of BADR.
You’ll pay tax at either:
18% on all gains on qualifying assets disposed of from 6 April 202614% on all gains on qualifying assets disposed of between 6 April 2025 and 5 April 202610% on all gains on qualifying assets disposed of on or before 5 April 2025
Let’s imagine you’re selling your business for £500,000 in October 2026, where the 18% BADR relief rate will apply. This is how the numbers will look:
| Net gain: | £500,000 |
| Less annual exemption: | -£3,000 |
| Taxable gain: | £497,000 |
| BADR tax rate applied: | 18% |
| Total CGT Liability: | £497,000 × 18% = £89,460 |
If BADR wasn’t available, you’d have to pay CGT at the standard rates – assuming a 24% higher rate, that would mean a total CGT liability of £119,280. By claiming BADR, you’d be saving £29,820.
Who’s eligible for BADR?
If you’re ready to sell your business, applying for the relief can have a significant impact on your CGT tax bill. So, are you eligible to claim BADR against your disposal?
Both of the following must apply for at least 2 years up to the date you sell your business:
- you’re a sole trader or business partner
- you’ve owned the business for at least 2 years
The same conditions apply if you’re closing your business instead. You must also dispose of your business assets within 3 years to qualify for relief.
BADR is also available on certain share sales in a trading company, provided the individual is an employee/office holder and minimum holding periods are met.
If you’ve sold a business asset, or plan to sell in the coming months, come and talk to our team.
We’ll check if you’re eligible for the relief and will run through the numbers for your disposal. If needed, we can also help you prepare your self-assessment tax return to make the claim.