**Business Asset Disposal Relief** taxes the first £1 million of qualifying capital gains at a reduced rate when you sell all or part of a trading business — but that reduced rate is now 18% from 6 April 2026, having risen from 14% in 2025/26 and just 10% before April 2025. For a founder selling a company, the relief is worth up to £60,000 against the standard 24% rate on the first £1 million, and nothing at all above it.
The relief, still widely called entrepreneurs' relief, has been quietly diluted across two Budgets. If you are planning an exit, the rate you pay now turns heavily on timing, on meeting a tightened set of conditions, and — if you hold a US passport — on a second tax system that does not recognise the relief at all. Here is how it works in 2026/27 and where the money is won or lost.
What Business Asset Disposal Relief is in 2026
BADR is a capital gains tax relief that applies a reduced rate to gains on the disposal of qualifying business assets, up to a lifetime limit. It does not exempt the gain — it re-rates it. In 2026/27 qualifying gains are taxed at 18% instead of the 24% main rate that applies to higher-rate taxpayers, and the relief is capped at £1 million of gains across your lifetime.
The 18% figure is the endpoint of a deliberate phase-out. The rate was 10% for well over a decade, rose to 14% for disposals from 6 April 2025, and rose again to 18% for disposals from 6 April 2026, as confirmed on the GOV.UK Business Asset Disposal Relief guidance. The lifetime limit, once £10 million, was cut to £1 million back in March 2020 and has stayed there.
What the 18% rate is actually worth
On a fully qualifying £1 million gain, BADR at 18% produces a £180,000 tax bill, against £240,000 at the standard 24% rate — a saving of £60,000. Back in 2024/25 the same gain taxed at 10% cost £100,000, so the relief has become £80,000 less valuable in two years while the headline still reads as a 'relief'.
Above the £1 million lifetime limit, gains are taxed at the ordinary CGT rates — 24% for higher-rate taxpayers on most assets — with no BADR benefit. So the planning question for anyone selling a business worth several million is not only whether BADR applies, but how to make the most of a relief that now covers a shrinking share of a typical exit. You can model the exact figures for your own sale with our UK Business Asset Disposal Relief calculator.
The qualifying conditions you must meet
BADR is not automatic and the conditions are strict. For a disposal of shares in your personal company, throughout the two years ending on the date of sale you must have been an officer or employee of the company, and the company must be a trading company or the holding company of a trading group. You must also have held at least 5% of the ordinary share capital, carrying at least 5% of the voting rights, and be entitled to at least 5% of the profits available for distribution and 5% of the assets on a winding up — or, alternatively, 5% of the proceeds on a sale of the whole company.
For a sole trader or partnership, you must have owned the business for at least two years before the disposal. The two-year qualifying period, extended from one year in 2019, is the condition most often failed by founders who accept an unexpected offer shortly after a share reorganisation or a new incorporation.
- Two years as an officer or employee of the company, ending on the date of disposal.
- The company is a trading company or holding company of a trading group throughout that period.
- At least 5% of ordinary shares, votes, and rights to profits and assets (or 5% of sale proceeds).
- For unincorporated businesses, two years of ownership before the sale.
- The £1 million lifetime limit applies across all your qualifying disposals, cumulatively.
The anti-forestalling rules on the rate change
Because the rate stepped up on 6 April 2025 and again on 6 April 2026, HMRC introduced anti-forestalling rules to stop people locking in the old rate on paper. Where an unconditional contract was entered into before a rate change but completes after it, the disposal is generally treated as taking place on completion — so the later, higher rate applies — unless you can show the contract was not entered into to obtain a tax advantage and, for connected parties, meet additional conditions.
The detail sits in HMRC's Capital Gains Manual at CG64174. The practical message is that you cannot sign a contract in March to bank an 18% or 14% rate and complete months later expecting the old figure; the arrangement is tested, and elections made purely to forestall the increase are disclosed to HMRC. Timing a genuine deal is legitimate; papering one is not.
How BADR interacts with the annual exempt amount and losses
The capital gains annual exempt amount for 2026/27 is £3,000. You set it, and any allowable capital losses, against your gains in the way that produces the lowest tax — which usually means setting losses and the exemption against gains that do not qualify for BADR first, preserving as much of the 18% relief as possible.
The £1 million lifetime limit is measured on gains, not proceeds, and it is cumulative across every BADR claim you have ever made, including claims under the old entrepreneurs' relief name. If you claimed relief on an earlier sale, that amount has already used part of your lifetime limit, and only the balance is available now.
The US layer: what a US-citizen founder pays on top
If you are a US citizen or Green Card holder living in the UK, selling your UK company is taxed by both countries. The UK charges CGT with BADR at 18%; the US charges its own capital gains tax on the same gain, generally at 20% for a long-term gain plus the 3.8% net investment income tax, because US citizens are taxed on worldwide gains regardless of where they live.
The mechanism that stops genuine double taxation is the foreign tax credit: the UK CGT you pay is credited against your US capital gains tax on the same disposal. But BADR quietly undermines this. By reducing your UK rate to 18%, BADR leaves less UK tax to credit against a US rate of up to 23.8% — so the very relief that helps a British founder can leave a US-citizen founder with a US top-up bill and no UK saving to show for it. We cover the wider mechanics in selling a UK business as a US citizen.
Why BADR can be worth less to Americans than to their co-founders
Consider two co-founders splitting a £1 million qualifying gain. The British founder pays £180,000 of UK CGT at 18% and is done. The American founder pays the same £180,000 to HMRC, then computes US tax of around £238,000-equivalent at 23.8%, credits the £180,000 of UK tax, and pays the roughly £58,000 difference to the IRS — a bill the British co-founder never sees.
Had the UK rate been the full 24%, the American would have paid £240,000 to HMRC, more than covered the US liability, and owed the IRS nothing while banking excess foreign tax credits. This is the counter-intuitive result: a lower UK rate can increase a US citizen's total tax, because it shrinks the credit. It is exactly why exit planning for dual-status founders has to be run across both systems together, not sequentially — the treaty coordination is what treaty planning exists to handle.
QSBS and section 1202: usually no help here
US founders sometimes ask whether the US qualified small business stock exclusion under section 1202 can shelter the US side. For a UK company, almost never: section 1202 requires stock in a domestic C corporation, and shares in a UK limited company do not qualify. A UK company is typically a passive foreign investment company or a controlled foreign corporation for US purposes, which brings its own reporting rather than an exclusion.
The result is that the US citizen founder rarely has a US-side relief to match BADR, which makes the foreign tax credit position above the central planning point. Structuring around it — where it is possible at all — has to be done years before a sale, not in the weeks before completion.
Timing the exchange rate and the payment dates
The two systems pay tax on different dates and translate the gain at different exchange rates, which can create or destroy foreign tax credits by accident. UK CGT on a 2026/27 disposal is due by 31 January 2028; US tax on the same gain is due with your 2026 return in 2027. Because the credit is claimed in the year the foreign tax accrues, a mismatch in timing can leave credits stranded in the wrong year.
The gain itself is also computed in each currency separately, so movements in the pound between acquisition and sale can mean the US-measured gain differs materially from the UK-measured one. On a large exit these frictions are worth tens of thousands, and they are invisible until someone models both returns. If you are approaching a sale, contact us before you sign anything.
Investors' Relief and the wider CGT picture
Alongside BADR sits Investors' Relief, aimed at external investors in unlisted trading companies rather than working owners. Its lifetime limit was cut from £10 million to £1 million from 30 October 2024, and its rate has followed the same path to 18% from April 2026. For angel investors and early backers who do not work in the business, it can apply where BADR cannot, but the conditions differ and the two limits are separate.
For most founders, though, the relevant reliefs are BADR on the trading company and, on any residential property extracted from the deal, the standard residential CGT rates. Keeping the trading status clean — cash reserves and investment assets can taint it — is often what preserves the relief in the first place.
Practical steps before an exit
- Confirm the two-year clock on employment or ownership is genuinely met at the completion date, not the exchange date.
- Check your shareholding still meets all four 5% tests after any funding round or option exercise diluted you.
- Review the company's trading status — surplus cash and investments can disqualify the whole claim.
- Model the deal at 18% and at 24% and, if you are a US citizen, run both UK and US returns together for the foreign tax credit position.
- Do not sign an unconditional contract expecting an old rate on later completion — the anti-forestalling rules will catch it.
- Use the £3,000 annual exempt amount and any losses against non-qualifying gains first.
How TaxStone handles a founder exit
At TaxStone we treat a US-citizen founder's exit as a single cross-border transaction, not two national ones. That means checking the BADR conditions on the UK side, projecting the US capital gains and NIIT, aligning the foreign tax credit across the right tax years, and stress-testing the exchange-rate translation before completion rather than after.
The recurring lesson is that the lowest UK bill is not always the lowest total bill for an American. Sometimes the right move is to claim BADR; sometimes, for a US citizen, a higher UK rate that generates more creditable tax leaves you better off overall. Book a free consultation and we will model your specific exit across both systems: /get-started.
The short version
Business Asset Disposal Relief taxes the first £1 million of qualifying gains at 18% from 6 April 2026, saving up to £60,000 against the standard 24% rate. Meet the two-year and 5% conditions, respect the anti-forestalling rules on timing, and use your losses and £3,000 exemption efficiently.
For US-citizen founders there is a sting in the tail: a lower UK rate means a smaller foreign tax credit, so BADR can raise your total tax rather than lower it once the IRS takes its share. Run both returns together before you complete, and if you would like that done properly, contact us.
