Business Asset Disposal Relief (BADR) 2026/27: The New 18% CGT Rate Explained

Business Asset Disposal Relief (BADR), formerly Entrepreneurs’ Relief, provides a valuable reduction in the amount of Capital Gains Tax (CGT) payable on the disposal of qualifying business assets. For disposals made in the 2026/27 tax year, significant changes to the relief take effect, most notably an increase in the applicable tax rate. Understanding these new rules is critical for effective tax planning.

The New BADR Rate from 6 April 2026

The Finance Act 2025 introduces a phased increase to the CGT rate for gains qualifying for BADR. While a lifetime limit of £1 million in qualifying gains remains, the rate applied to those gains has changed.

For the 2026/27 tax year, any gains qualifying for BADR will be taxed at 18%. This change makes it essential to correctly identify whether a disposal qualifies for the relief.

Who Qualifies for Business Asset Disposal Relief?

BADR is available to individuals and some trustees on “qualifying business disposals”. The primary categories are material disposals of business assets and associated disposals.

1. Material Disposal of Business Assets

A disposal is a “material disposal” if it involves selling:

• All or part of your business: This applies if you are a sole trader or partner and have owned the business for at least two years leading up to the disposal date. It is important to note that the disposal of a single business asset is not necessarily the same as disposing of part of your business; it must be a clearly identifiable part of the trade.
• Shares or securities in your personal company: To qualify, for at least two years up to the date of disposal, the company must be a trading company (or the holding company of a trading group), and you must be an employee or office holder who holds at least 5% of the ordinary share capital and voting rights.
• Assets used in a business that has now ceased: The assets must have been in use at the time the business ceased, and you must have owned the business for at least two years prior to cessation. The disposal must occur within three years of the business ceasing.

2. Associated Disposals

An associated disposal occurs when you sell an asset that you personally own but which is used by your partnership or personal company. For the disposal to qualify for BADR, it must be associated with a significant withdrawal from that business, such as a material disposal of your partnership interest or shares in the company.

For a business to qualify, it must be a trade, profession, or vocation conducted on a commercial basis with a view to profit.

The Anti-Forestalling Rules: A Warning

To prevent taxpayers from artificially accelerating disposals to benefit from a lower tax rate, the Finance Act 2025 introduced anti-forestalling provisions. These rules are particularly relevant for disposals where contracts are exchanged in the 2025/26 tax year but complete on or after 6 April 2026.

Normally, the date of disposal for CGT is the date an unconditional contract is made (TCGA 1992, s 28). However, the anti-forestalling rules can override this. If an unconditional contract is entered into during the 2025/26 tax year and the asset is transferred on or after 6 April 2026, the disposal is treated as taking place at the later completion date for the purposes of determining the BADR rate. This means the 18% rate would apply.

This rule will not apply if the contract is an “excluded contract”. This requires demonstrating that there was no purpose of obtaining a tax advantage from the timing rules and, where parties are connected, that the contract was entered into for wholly commercial reasons. There is also a de minimis exception where no specific claim is needed if the total gains on all excluded contracts are below £100,000.

How to Claim BADR

Business Asset Disposal Relief is not applied automatically; you must make a claim.

• Method: A claim is typically made through your Self Assessment tax return in the capital gains summary pages.
• Deadline: The claim must be made on or before the first anniversary of 31 January following the tax year of the disposal. For a disposal in 2026/27 (ending 5 April 2027), the claim deadline is 31 January 2029.

The relief works by reducing the rate of tax applied to the gain, not by reducing the chargeable gain itself.

For detailed technical guidance, you should refer to HMRC’s Capital Gains Manual, starting from CG63950P. Specific guidance on the meaning of a business is at CG63965, and the conditions for qualifying disposals are detailed from CG63975 onwards.