If you are thinking about selling your shares, liquidating the company, or winding things up to retire, the maths just changed. Business Asset Disposal Relief now charges 18% on qualifying gains, up from 14% last year and 10% the year before. And HMRC's Wealthy Team is writing to anyone who has used most of the £1m lifetime limit on past claims, asking them to prove the figures add up.
TL;DR: Business Asset Disposal Relief (BADR) is taxed at 18% for disposals on or after 6 April 2026, up from 14%. The £1m lifetime limit is cumulative across every BADR (and old Entrepreneurs' Relief) claim you have ever made. HMRC sent nudge letters in January and May 2026 to taxpayers near or over the limit. Directors planning an exit should pull every prior claim before signing anything.
What Changed for BADR on 6 April 2026?
The rate is 18% on qualifying gains from 6 April 2026 onwards, up from 14% in 2025-26 and 10% before that (HMRC Capital Gains Manual CG64174, 2026). The 18% rate now matches the basic-rate CGT charge for most other assets (Deloitte UK Tax Tables 2026-27, 2026), so the headline saving has shrunk.
A worked example: a £1m qualifying gain costs £180,000 at 18%, against £140,000 last year and £100,000 in 2024-25. That is a £40,000 swing in twelve months and an £80,000 swing in two years. If you signed an unconditional contract before 6 April 2026 to lock in the 14% rate, anti-forestalling rules apply and HMRC will scrutinise the contract closely (HMRC CG64174, 2026).
How Does the £1m Lifetime Limit Actually Work?
The limit is £1m of qualifying gains across your lifetime - not per company, not per disposal, not refreshed by a long gap between claims. Every BADR claim since 11 March 2020, and every Entrepreneurs' Relief claim before that, counts toward the same cumulative total (Saffery BADR guide, 2026).
The trap most directors fall into: between April 2011 and March 2020 the lifetime limit was £10m, and between June 2010 and April 2011 it was £5m. Someone who claimed £4m of Entrepreneurs' Relief on a 2018 exit thinks they have plenty of headroom left. They have already used four times the current £1m allowance. When we review a client's claim history before a second exit, this is the single most common surprise.
Each spouse or civil partner has their own £1m limit, which can be useful in planning, but only if the qualifying conditions are met for both individuals.
Who Qualifies for BADR in 2026-27?
To claim BADR on a disposal of shares in your personal company, three conditions must be met throughout the two years ending on the date of disposal (BDO BADR guide, 2026):
- The company is a trading company or the holding company of a trading group
- You are an officer or employee of the company
- You hold at least 5% of the ordinary share capital, giving you 5% of voting rights AND 5% of distributable profits and net assets on a winding up, OR you are entitled to 5% of the proceeds on a sale of the whole share capital
For sole traders and partners, the two-year test is that you carried on the business throughout the period ending on the disposal. If the business has ceased, the disposal must happen within three years of cessation.
The 5% test catches people out when shares have been issued mid-period, alphabet share classes are in play, or growth shares restrict economic rights. If your cap table has anything more complex than a single ordinary share class held for the full two years, get the articles reviewed before you assume the test is met.
Why Is HMRC Writing to BADR Claimants?
HMRC's Wealthy Team sent BADR nudge letters in two tranches during 2026 - January and May - to taxpayers who claimed BADR on their 2024-25 Self Assessment return (Chartered Institute of Taxation, 2026). Two versions exist: an "Already Over" letter where the recipient had already breached the £1m limit before the 2024-25 claim, and a "This Year" letter where the 2024-25 claim itself tipped them past £1m (Tax Rebate Services, 2026).
The letters give 30 days to respond. If you ignore them, HMRC can amend the return or open a formal compliance check. Our advice if a client receives one: respond inside the window, even if the response is just "we are gathering the historical claim data". Silence reads as concession.
What Should Directors Do Before Selling or Liquidating?
Three things to pull together before anyone signs:
- Every prior BADR claim and every prior Entrepreneurs' Relief claim, listed tax-year-by-tax-year, including claims made under the old £5m and £10m lifetime limits before March 2020.
- The qualifying-period evidence: share register, employment contract, articles of association, and the trading-status analysis for the last two years.
- A clean reconciliation of where the £1m sits as of today. If you have already used it, the surplus drops to the main CGT rate of 18% or 24% depending on your income band (MoneySavingExpert tax rates 2026-27, 2026).
One question clients always ask: "Can we use my spouse's limit too?" Sometimes - if the shares can be transferred at no-gain-no-loss and your spouse genuinely meets the 5% test, officer-or-employee test, and two-year holding period in their own right. Last-minute transfers do not survive the qualifying-period requirement.
If you have a limited company you no longer need, a members' voluntary liquidation can still distribute reserves at CGT rates rather than dividend rates, but the BADR benefit has narrowed. Run the numbers against an extraction strategy using salary and dividends in the new 2026-27 bands before assuming liquidation is the cheaper route.
Frequently Asked Questions
Is BADR the same as Entrepreneurs' Relief?
Yes - Entrepreneurs' Relief was renamed Business Asset Disposal Relief in the 2020 Budget. The mechanic is the same, and every Entrepreneurs' Relief claim you ever made still counts toward your current £1m BADR lifetime limit.
What is the CGT annual exempt amount for 2026-27?
£3,000 per individual (HL tax facts, 2026). Gains above the annual exempt amount and within the £1m BADR cap are taxed at 18%. Gains above £1m are taxed at the main CGT rates of 18% (basic) or 24% (higher and additional).
Will the rate keep rising after 2026?
No further increases have been announced beyond the 18% rate from 6 April 2026. Budgets can change. If you are planning an exit in the next 24 months, build in headroom rather than gambling on a freeze.
What if I signed a sale contract before 6 April 2026?
Anti-forestalling rules apply. Only "unconditional contracts" predating the rate change can lock in the 14% rate, and HMRC examines these carefully. Conditional contracts (subject to due diligence, regulatory clearance, etc.) do not lock the rate. Get the contract analysed before relying on it.
Do I need to claim BADR or is it automatic?
You claim it on your Self Assessment return (or the trust return for trustees). The deadline is the first anniversary of 31 January following the tax year of disposal. For 2026-27 disposals, the claim deadline is 31 January 2029.
If you are planning to sell, liquidate, or restructure in the next 24 months, the BADR rate change makes the timing and the lifetime-limit position worth a proper review. Talk to our team - we can pull your historical claim trail, work through the 5% and trading-status tests, and model the post-exit numbers against alternative extraction routes.