Business Asset Disposal Relief Cut: What Budget 2026 Means for Business Sellers

November 5, 2026

The Autumn Budget on 28 October 2026 confirmed another cut to Business Asset Disposal Relief (BADR). For qualifying disposals made on or after 6 April 2027, the lifetime limit on gains eligible for the relief will halve, from £1 million to £500,000. For entrepreneurs, shareholders and family business owners planning an exit, the BADR 2026 changes could mean a higher Capital Gains Tax bill when they sell.

HMRC estimates that around 13,000 of the roughly 51,000 people who claim the relief will be affected. If you have spent years building a business and expect a sale to fund your retirement or your next venture, it is worth understanding now whether you are likely to be one of them.

At Tayntons, our Company and Commercial team supports business owners across Gloucestershire through business sales, succession and exit planning. In this article, we explain what BADR is, what is changing, the practical impact on sellers, and the points to consider if a sale is on your horizon.

What is Business Asset Disposal Relief?

In brief: Business Asset Disposal Relief, known as Entrepreneurs’ Relief until April 2020, reduces the rate of Capital Gains Tax (CGT) you pay when you sell or give away all or part of a qualifying business, or qualifying shares in a trading company. Since 6 April 2026, the BADR rate has been 18% and applies to qualifying gains up to the relevant lifetime limit.

If you are selling shares, you must generally meet the main conditions throughout the two years up to the date of sale. According to HMRC’s eligibility guidance:

• you must be an employee or office holder (such as a director) of the company, or of a company in the same group
• the company’s main activities must be trading, rather than non-trading activities such as investment
• the company must be your “personal company”, meaning you hold at least 5% of the ordinary shares and at least 5% of the voting rights, and are also entitled to at least 5% of either the distributable profits and assets on a winding up, or the proceeds if the company is sold

Sole traders and business partners can also qualify when selling all or part of their business, provided they have owned it for at least two years. Different rules apply to shares acquired through an Enterprise Management Incentive (EMI) scheme.

BADR 2026 Changes: A Relief in Steady Decline

The latest cut is the third significant change to the relief in under seven years:

Taken together, these changes mean a seller who could once shelter up to £10 million of gains at 10% will, from April 2027, be limited to £500,000 at 18%.

What Is Changing from April 2027?

Under the current rules, qualifying gains up to £1 million over your lifetime are taxed at the BADR rate of 18%. From 6 April 2027, only the first £500,000 of lifetime qualifying gains will benefit. Gains above that figure will be taxed at the standard CGT rates: 18% for gains falling within the basic rate band and 24% for higher and additional rate taxpayers.

The limit is lifetime, so any BADR you have already claimed counts towards it. Someone who has already used £500,000 or more of the relief will have nothing left to claim on a disposal made after 6 April 2027.

The table below shows the effect for a higher rate taxpayer with no previous BADR claims. For simplicity, it ignores the CGT annual exempt amount and any other reliefs or losses.

For a higher rate taxpayer, the additional tax is 6% of the qualifying gain between £500,000 and £1 million, which means a maximum increase of £30,000 per individual at current rates. That is a meaningful sum for most owner-managers, and where several shareholders are selling, the combined cost can be considerably higher.

Practical Impact of the BADR Changes on Business Sellers

Lower tax relief on sales

Sellers whose qualifying gains exceed £500,000 will pay more tax than they would under the current rules. For a business with several qualifying shareholders, each with their own lifetime limit, the overall effect on net sale proceeds can be significant.

Pressure on exit timing

Some owners will want to explore whether a sale can complete before 6 April 2027. For CGT purposes, the date of disposal under an unconditional contract is normally the date the contract is entered into, not the date of completion. To prevent sellers from locking in the higher limit through early contracts, the government has proposed anti-forestalling rules. Where an unconditional contract is entered into before 6 April 2027 but completes on or after that date, the reduced £500,000 limit will apply unless the parties can show the contract was not entered into to obtain a tax advantage. Where the parties are connected, they will need to show the contract was entered into for wholly commercial reasons.

Separate rules are also proposed for certain share reorganisations and share exchanges. These proposals are subject to the passage of the next Finance Bill. A rushed sale can also mean a lower price, weaker contractual protections or a buyer who is not the right fit, so tax timing should be weighed carefully against the commercial merits of the deal.

Impact on retirement planning

Many owner-managers rely on the sale of their business to fund their retirement. A lower threshold could reduce net proceeds, so retirement, succession and wider family plans may need to be revisited.

Who is most affected?

Those most likely to feel the change include family-owned companies, professional practices, owner-managed SMEs, management buyout teams, and founders who have built significant value over many years.

Why UK tax planning matters more than ever

With the relief now worth less than at any point since its introduction, careful UK tax planning ahead of an exit has become more important. Good planning is not about avoiding tax; it is about understanding your position early enough to make informed decisions about timing, structure and succession.

Business Asset Disposal Relief: Planning Considerations for Business Owners

Shareholding structure

Check that each shareholder expecting to claim the relief meets the 5% tests and has held their position as an officer or employee for the full two-year qualifying period. A spouse or civil partner has their own lifetime limit, but only if they personally meet every condition for the full two years. Reviewing your shareholder and partnership agreements early can help identify any gaps.

Exit timescales

If you are likely to sell within the next 12 to 24 months, early advice from your accountant or tax adviser is key to understanding whether your transaction timetable affects eligibility. We work alongside your financial advisers to align the legal and tax aspects of a sale from the outset.

Succession planning

A third-party sale is not the only route. Family transfers, employee ownership structures, management buyouts and phased exits each have their own legal and tax implications, and one may suit your goals better than another. Our corporate restructuring services can help you prepare the right structure.

The Budget also announced a proposed new Founders’ Relief, offering a 10% CGT rate on up to £10 million of lifetime gains for founders and significant early investors in high-growth, innovative companies. It is intended to apply from 6 April 2027 and is subject to a technical consultation closing on 30 November 2026. Its conditions are much narrower than BADR, so most owner-managed businesses will not be eligible.

Transaction readiness

Preparing a business for sale takes time. Corporate records, statutory registers, key contracts, accounts and tax affairs should be in good order well before any target completion date. Buyers will also look closely at property and employment matters, so it helps to involve our commercial property and employment law specialists early. Addressing issues before due diligence begins reduces the risk of delays or price reductions later in the process.

Protecting you and your proceeds

A sale often changes your personal position significantly. It is sensible to review your Will, trusts, and Lasting Powers of Attorney once a sale is in view, and to ensure a business Lasting Power of Attorney is in place so someone you trust can act if you lose capacity during a transaction.

Conclusion: Plan Before the BADR Threshold Falls

Halving the BADR lifetime limit to £500,000 continues the steady erosion of a relief originally designed to reward entrepreneurship and business investment. For many SME owners, it will mean a higher tax bill on exit and may bring forward conversations about sale planning and succession.

If you are considering selling your business, the most valuable step is to seek advice early, so you understand the likely tax impact and can make the most of the reliefs still available.

As Commercial Solicitors trusted by Gloucestershire businesses, Tayntons is rated Excellent on Review Solicitors. Our approachable, plain-English approach means you will always have direct access to someone who can answer your questions. To discuss your exit or succession plans with our Solicitors in Gloucester, contact our Company and Commercial team or call 01452 522 047.

For wider advice, explore our company and commercial legal support, including our dedicated business sales and purchases service.

Frequently Asked Questions

When do the new BADR rules take effect?

The reduced £500,000 lifetime limit applies to qualifying disposals made on or after 6 April 2027. Disposals made before that date remain subject to the current £1 million limit, although anti-forestalling rules are proposed for unconditional contracts entered into before 6 April 2027 that complete afterwards.

How will the BADR changes affect my business sale?

If your lifetime qualifying gains, including any previous BADR claims, exceed £500,000, the excess will be taxed at standard CGT rates rather than the BADR rate. For a higher rate taxpayer, that means up to £30,000 more tax per individual at current rates.

What rate of Capital Gains Tax applies under BADR?

The BADR rate has been 18% since 6 April 2026, and Budget 2026 did not change it. Gains above the lifetime limit are taxed at 18% where they fall within your basic rate band and 24% above it.

If I exchange contracts before 6 April 2027, will I keep the £1 million limit?

Not automatically. Under the proposed rules, where an unconditional contract is entered into before 6 April 2027 but completes on or after that date, the £500,000 limit applies unless the parties can show the contract was not entered into to obtain a tax advantage, or, for connected parties, that it was entered into for wholly commercial reasons. You should take advice before agreeing a timetable.

Do previous BADR or Entrepreneurs’ Relief claims count towards the new limit?

Yes. The limit is lifetime, so relief you have already claimed reduces the amount still available.

Is Founders’ Relief a replacement for BADR?

No. Founders’ Relief is proposed as a separate relief for founders of high-growth, innovative companies that meet strict conditions. BADR continues alongside it, with the reduced limit, for qualifying business owners.

Important: This article is for general information only and does not constitute legal or tax advice. The anti-forestalling and Founders’ Relief proposals may change before they become law. Please seek Tax advice on your own circumstances from a tax advisor.