The Tax Break Every Selling Owner Should Ask About

Budget update, 28 October 2026

The Chancellor announced that the BADR lifetime limit will halve, from £1 million to £500,000, for qualifying disposals from 6 April 2027. The 18% rate is unchanged, and the Government says three in four claimants will not be affected. On a £1 million gain, a sale after that date would bear £210,000 of tax rather than £180,000, so the maximum saving falls from £60,000 to £30,000 per person. Disposals before 6 April 2027 keep the £1 million limit. These are announcements rather than law, so check the final rules before you act.

What Business Asset Disposal Relief Actually Does

Say you’re a director or owner who works in your own company. There’s an important tax relief you should know the name of: Business Asset Disposal Relief, often shortened to BADR.

In simple terms, it reduces the tax rate on the gain you make when you sell qualifying shares in your own trading company. That’s compared to the standard rate that would otherwise apply.

For many owners, it’s the biggest single tax saving available on a sale. However, it’s also one of the easiest to lose by accident. This guide explains how the relief works, who qualifies, what the Budget has changed and where owners most often go wrong.

How the Relief Works in Practice

When you sell shares at a profit, you normally pay Capital Gains Tax (CGT) on the gain. For higher-rate taxpayers, the standard rate on a gain like this is 24%.

BADR lowers that rate for qualifying gains. From 6 April 2026, the BADR rate is 18%. For years, it sat at a flat 10%. It then rose to 14% in April 2025, before climbing again.

The relief covers the first £1 million of qualifying gains across your lifetime for disposals up to 5 April 2027. From 6 April 2027, it covers only the first £500,000. Gains above the limit fall back to the standard rate.

Here’s a simple example. Say you sell your company and make a £1 million gain that qualifies. At 24%, you’d pay £240,000 in tax. Under the current limit, BADR at 18% brings that down to £180,000. That’s a saving of £60,000.

Now say the same sale takes place after 6 April 2027. The first £500,000 is taxed at 18%, which is £90,000. The other £500,000 is taxed at 24%, which is £120,000. Your total bill is £210,000, so the saving falls to £30,000.

That’s £30,000 more tax on the same sale. Even so, £30,000 is well worth protecting. Better still, the limit applies per person. If you and a co-owner both qualify, you each get your own £500,000 allowance.

Who Qualifies

To qualify, you broadly need to meet four conditions.

First, the company must be a trading company, or the holding company of a trading group. Second, you must be an officer or employee of the company. A director counts as an officer. Third, you must own at least 5% of the ordinary share capital, with at least 5% of the voting rights. Finally, those shares must also carry a matching right to profits and assets.

You must meet all four conditions throughout the two years before the sale. That’s a continuous test, not a snapshot. Miss it for even part of the period, and you could lose the relief entirely.

You Have to Claim It

Many owners assume BADR happens automatically. It doesn’t. You must actively claim it, usually on your Self Assessment tax return. HMRC won’t apply it on your behalf.

The claim also has a deadline. It falls well after the sale, so it’s easy to forget. Ask your accountant to confirm the exact date for your sale, and put it in the diary as soon as you agree terms.

Keep your evidence too. Share registers, board minutes, employment contracts and company accounts all help to prove you met the conditions. If HMRC asks questions years later, you’ll want those records to hand.

The Lifetime Limit Matters More Than You Think

The cap works across your whole life, not per sale. If you’ve claimed BADR before, perhaps on an earlier business sale, that earlier gain counts towards the limit.

The limit has been cut twice. It was £10 million until it dropped to £1 million in March 2020. The Budget now halves it again, to £500,000 from April 2027. So an owner who used part of an earlier limit may have little or none of the new one left. How earlier claims count against the lower limit should be confirmed once the legislation is published. Check your history before you assume the full allowance remains available.

Gains above the limit don’t escape tax. They simply fall back to the standard rate. With a lower cap, more owners will find their gain exceeds it. Planning therefore focuses on making the most of the limit, not on avoiding it altogether.

Should You Rush to Sell Before April 2027?

If your gain is below £500,000, the Budget changes nothing for you. If it’s higher, the sale date now matters. Disposals before 6 April 2027 keep the £1 million limit.

For tax purposes, the date of a sale is generally when contracts are exchanged unconditionally, not when the deal completes. Your accountant can confirm the date that applies to your deal.

However, a rushed sale carries its own risks. You could accept a weaker price, or a buyer who walks away during due diligence. The two-year qualifying test also still applies. And the final rules are yet to be published. For most owners, the extra tax is a cost to weigh up and plan around, not a reason to sell at the wrong time. If a sale is already on the horizon, ask your adviser to model the position on both sides of the date.

The Trap Most Owners Miss

Here’s the trap. HMRC judges whether you qualify at the point you sell, not when you first set up the business. Decisions you make years in advance can accidentally cost you this relief long before you ever plan to sell.

Bringing in outside investors who reduce your stake. Changing your role. Restructuring how shares are held. Each of these can quietly break a condition. Nobody sends a warning when it happens, either. You only find out when you try to claim.

It’s worth checking your position periodically, not just when a sale is imminent.

Three Ways Owners Lose the Relief

Real-life patterns repeat. Three come up more than any others.

Dilution below 5%. Imagine a founder who holds 8% after an early funding round. A later round brings in new investors, and the founder’s stake falls to 4%. The condition fails from that moment. Special elections can sometimes help. However, they’re technical and time-sensitive, so take advice before the round completes.

A change of role. Picture an owner who steps back ahead of a sale. They resign as a director and move to a consultancy contract. It feels like a sensible handover. Yet they’ve just stopped being an officer or employee. If that happens inside the two-year window, the relief can fall away.

Drifting away from trading. Say a company builds up surplus cash, or buys investment property alongside its main business. Over time, those non-trading activities can grow. If they become more than a small part of the business, HMRC may treat the company as non-trading. Advisers often use 20% as a rule of thumb, though the test looks at several factors.

Each of these situations feels sensible in the moment. That’s why they catch so many owners out.

Why Timing Matters So Much

The two-year clock runs backwards from the sale date. So when you plan changes to your shares or role, count back from when you might sell, not forward from today.

For example, say you’d like to sell in three years’ time. Any restructuring should ideally finish within the next twelve months. That leaves a comfortable gap before the two-year window opens.

The Budget adds a second date to keep in view: 6 April 2027, when the lower limit starts. If a sale could fall near that date, plan both clocks together.

Rushed changes close to a sale carry the most risk. Early, deliberate ones carry the least.

Sales also rarely happen on a fixed schedule. Offers can appear unexpectedly. So keeping your position clean all the time protects you if an opportunity arrives early.

A Practical Checklist

You don’t need to become a tax expert. A short annual review covers most of the risk.

Each year, ask yourself these questions:

• Do I still own at least 5% of the ordinary shares and voting rights?
• Am I still a director or employee of the company?
• Is the company still mainly trading, with little non-trading activity?
• Have any funding rounds, share issues or reorganisations changed my position?
• Are my share records, minutes and contracts up to date?
• Could my expected gain exceed £500,000, and could a sale fall either side of 6 April 2027?

If you answer “no” or “not sure” to any of the first five, or “yes” to the last one, speak to your accountant. Catching a problem early often costs little to fix. Catching it at the point of sale can cost tens of thousands of pounds.

Why Early Advice Pays for Itself

The rules around BADR are technical, and the consequences of getting them wrong are large. A relief worth up to £30,000 per person from April 2027 (and £60,000 before then) can disappear on a technicality.

An adviser who reviews your position early can spot problems while you still have time to fix them. They can also plan upcoming events, such as funding rounds or reorganisations, so those events don’t damage your claim. Moreover, they can model the real value of the relief, before and after the April 2027 change, against your wider plans.

That conversation takes an hour or two. Compared with the sums involved, it’s one of the best-value meetings you’ll have.

BADR and the Wider Picture

BADR rarely sits alone in a sale. Other decisions interact with it, and they can change how much of the relief you actually receive.

For instance, deferred payments and earn-outs affect when and how HMRC taxes part of your price. The structure you agree can influence whether later payments still qualify. Likewise, the shape of the deal changes how the tax works. Selling shares rather than assets is one example.

Family succession and inheritance planning also matter. If you plan to pass wealth to the next generation, the sale and the succession plan should fit together. Treating them separately often leaves money on the table.

The Bottom Line

There’s a valuable tax relief for selling business owners called BADR, but HMRC tests it at the point of sale, based on decisions made years earlier. The Budget has now halved the amount of gain it covers, from April 2027. Check your position now, not later, because it’s only worth something if you’ve structured the business correctly well before you need it.

How H&Hendricks Can Help

Checking your Business Asset Disposal Relief position — well before you plan to sell — is a standard part of H&Hendricks’ Preparing for Sale service.

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Ashley Bancroft is a founding Partner of H&Hendricks. A qualified Chartered Accountant and specialises in finance, strategy and entrepreneurship, with particular focus on value creation.