Business Asset Disposal Relief explained
Business Asset Disposal Relief still cuts the tax on selling your company, but the saving is smaller than it was and the conditions have to be met for two full years before the sale.
How it works
When you sell shares in your trading company, the gain is normally taxed at 24% for a higher rate taxpayer. Business Asset Disposal Relief, known as Entrepreneurs' Relief until April 2020, applies a lower rate to qualifying gains up to a lifetime limit of £1m.
| Business Asset Disposal Relief | Rate |
|---|---|
| Disposals on or before 5 April 2025 | 10% |
| Disposals from 6 April 2025 to 5 April 2026 | 14% |
| Disposals from 6 April 2026 | 18% |
Lifetime limit of qualifying gains: £1,000,000.
With the relief from 6 April 2026: gain up to £1m × 18%, the rest × 24%
The relief is applied when you claim it on your Self Assessment return. The deadline is the first anniversary of 31 January after the tax year of the sale: for a sale in the 2026 to 2027 tax year, that is 31 January 2029.
What it is worth today
Until 5 April 2025 the relief rate was 10% against a main rate of 20% or 24%, and the saving on a full £1m could exceed £100,000. Today it is worth much less:
| Qualifying gain | Tax at 24% | Tax at 18% with the relief | Saving |
|---|---|---|---|
| £250,000 | £60,000 | £45,000 | £15,000 |
| £500,000 | £120,000 | £90,000 | £30,000 |
| £1,000,000 | £240,000 | £180,000 | £60,000 |
Simplified: ignores the annual exempt amount and assumes the basic rate band is already used by income.
£60,000 is still real money, and the relief is worth claiming whenever you qualify. What has changed is the weight it should carry in your decisions. Restructuring a sale, delaying it or keeping a role you no longer want only to protect the relief makes less sense than it used to.
For a basic rate taxpayer with a small gain, the relief may save nothing at all, because the gain within the basic rate band is already taxed at 18%. It still uses up part of the lifetime limit.
The conditions, one by one
On a sale of shares, all of the following must be true throughout the two years ending on the date of the sale:
- A personal company. You hold at least 5% of the ordinary share capital and at least 5% of the voting rights. Since 29 October 2018 you must also be entitled to at least 5% of the distributable profits and assets on a winding up, or to at least 5% of the proceeds on a sale of the company. Alphabet shares and complex share classes can fail this test.
- An officer or employee. You are a director, company secretary or employee of the company or another company in the same group. Full time work is not required.
- A trading company. The company is a trading company, or the holding company of a trading group. HMRC treats non-trading activities above about 20% of turnover, assets, costs or management time as an indication that the company may not qualify.
Shares acquired through an Enterprise Management Incentives option have their own rules: the 5% test does not apply, and the two years run from the date the option was granted.
If the company has stopped trading, you can still qualify if you sell the shares within three years of the cessation, provided you met the conditions for the two years before it stopped.
The traps that cost owners the relief
- A cash pile. Years of retained profit invested in deposits, funds or a buy-to-let can make the company look like an investment company. Look at the 20% indicators long before the sale.
- Stepping down too early. Resigning as a director and leaving the payroll a year before completion breaks the officer or employee condition.
- Dilution below 5%. If a funding round takes you below 5%, you can elect to be treated as having sold and reacquired your shares just before the new issue, locking in the relief on the gain up to that point.
- A spouse with shares but no role. Shares given to a spouse who is not an officer or employee do not qualify in their hands, even though the transfer itself is free of CGT.
- Earn-outs. The relief applies to the value of the earn-out right at completion. Any later increase is a separate gain on the right and does not qualify, unless the earn-out is structured in shares or loan notes and the right election is made.
Related reliefs and alternatives
Investors' Relief
For investors who are not employees or officers. It needs newly issued ordinary shares in an unlisted trading company, subscribed for on or after 17 March 2016 and held for at least three years. The rates follow Business Asset Disposal Relief, 14% from April 2025 and 18% from April 2026, with a separate lifetime limit of £1m for disposals from 30 October 2024.
Employee Ownership Trust
A sale of a controlling interest to an EOT is now taxed on half the gain at normal rates, giving an effective rate of about 12% for a higher rate taxpayer. Business Asset Disposal Relief cannot be used on that half. The trade-off is a price usually paid over several years from future profits.
Phasing and spreading
Selling over two tax years, or with a spouse who qualifies in their own right, can use two annual exempt amounts and two £1m allowances. Each step has to make commercial sense in its own right.
These options are not interchangeable. Each has its own limits, risks and purpose. Compare them on net cash, timing and risk, not on the headline rate.
Official sources and caution
The rules are set out in the GOV.UK guidance on Business Asset Disposal Relief and in HMRC helpsheet HS275 (2026). Investors' Relief rates are in the HMRC Capital Gains Manual at CG63515.
This article summarises the rules for UK resident individuals as of October 2026. It does not cover trustees, non-residents or individual circumstances, and it does not replace tax and legal advice.
Frequently asked questions
Is Business Asset Disposal Relief still worth claiming?
Yes, if you qualify. From 6 April 2026 it saves 6 percentage points on qualifying gains for higher and additional rate taxpayers, up to £60,000 on the full £1m lifetime limit. It saves less, or nothing, on gains that fall within your basic rate band.
Can my husband, wife or civil partner claim as well?
Yes, each spouse has their own £1m lifetime limit. Your spouse must personally hold at least 5% and be an officer or employee for the two years before the sale. Giving shares to a spouse shortly before completion does not work.
I used some of the relief years ago. How much do I have left?
The £1m limit is a lifetime limit. It counts every qualifying gain you have claimed relief on before, including claims made under the old name of Entrepreneurs' Relief. Gather your earlier tax returns and ask your adviser to work out the balance before you rely on it in your planning.
