If you’re planning to sell, close, or downsize your business, understanding Business Asset Disposal Relief (BADR) is essential. This relief can significantly reduce the Capital Gains Tax (CGT) you pay when disposing of business assets. In 2025, BADR offers a great tax-saving opportunity for self-employed individuals and business owners. In this blog, we’ll explain what BADR is, the key changes introduced in 2024, how to qualify, and how to claim it.
What Is Business Asset Disposal Relief (BADR) in 2025?
Business Asset Disposal Relief (BADR) is a tax relief aimed at reducing the CGT rate when selling or disposing of business assets. This relief, formerly known as Entrepreneurs’ Relief, is particularly beneficial for sole traders, partners, and certain shareholders who are looking to wind up their businesses or sell parts of it.
Key facts about BADR:
- BADR was renamed in 2020 from Entrepreneurs’ Relief.
- As of 6 April 2025, the BADR rate increases to 14%, and it will further rise to 18% from 6 April 2026.
- The relief applies to individuals, such as sole traders, partners, and certain shareholders, but not limited companies.
- The lifetime limit for qualifying gains is £1 million.
- Eligibility for BADR depends on several criteria, including the duration the business or assets were held.
Changes in the 2024 Autumn Budget
The 2024 Budget introduced some important updates to BADR:
- The BADR rate remains at 10% for the 2024/25 tax year.
- From 6 April 2025, the rate increases to 14%, and it will rise further to 18% in 2026.
- The standard CGT rates have also increased: the lower rate from 10% to 18%, and the higher rate from 20% to 24%. BADR still offers a significantly lower rate for qualifying businesses.
- Starting in April 2027, inherited pension pots will be subject to inheritance tax.
Lifetime Limits for Different Periods
The lifetime limit for Business Asset Disposal Relief depends on when the disposal occurred:
- From 6 April 2008 to 5 April 2010: £1 million
- From 6 April 2010 to 22 June 2010: £2 million
- From 23 June 2010 to 5 April 2011: £5 million
- From 6 April 2011 to 10 March 2020: £10 million
- Disposals from 11 March 2020 onwards: £1 million
If you’re unsure about your specific lifetime limit, it’s best to consult with HMRC or a tax professional.
How to Qualify for Business Asset Disposal Relief
To qualify for BADR, certain conditions must be met, depending on your situation:
- Selling All or Part of Your Business: You must have been a sole trader or partner for at least two years and owned the business for that period.
- Closing Your Business: You need to have owned the business for at least two years and dispose of the assets within three years of closing the business.
- Selling Shares or Securities: If you sell shares in a company, you must have been an employee or officeholder for at least two years.
- Disposing of Assets Lent to the Business: You must have owned at least 5% of your share in the business for a year before the sale.
It’s essential to plan ahead and stay within the £1 million lifetime limit to maximize your tax relief eligibility.
How to Claim Business Asset Disposal Relief
Claiming BADR is straightforward if you’re filing your taxes through Self Assessment:
- Report the disposal of qualifying assets through your Self Assessment tax return.
- Fill out the relevant section of the Capital Gains Tax summary pages in your return to claim BADR.
- HMRC offers guidance and helpsheets to assist in completing the return correctly.
What If You Don’t Qualify for BADR?
If you don’t meet the criteria for BADR, you will be liable to pay CGT at the standard rates. However, there are alternative tax reliefs available that can reduce your CGT liability:
- Business Asset Rollover Relief: This defers CGT when selling business assets and reinvesting in new ones.
- Incorporation Relief: When transferring your business into a limited company, this relief defers CGT until you sell your shares in the company.
- Gift Hold-Over Relief: This allows you to defer CGT when gifting business assets, such as shares or property, to family members or business partners.
Conclusion
Business Asset Disposal Relief is a valuable tool for self-employed individuals and business owners looking to reduce their CGT when selling or winding down their business. By understanding how to qualify for BADR and how to claim it, you can ensure that you’re taking full advantage of the tax-saving opportunities available. If you don’t qualify for BADR, there are still alternative reliefs that can help reduce your tax liability.
