What is Business Asset Disposal Relief (BADR)?

If you’re considering closing a solvent company through a Members’ Voluntary Liquidation (MVL), you may be able to reduce the amount of tax you pay using Business Asset Disposal Relief (BADR). On this page, we explain what BADR is, how it works, and the conditions you’ll need to meet.

What is Business Asset Disposal Relief?

Business Asset Disposal Relief (BADR) is a tax relief that reduces the rate of Capital Gains Tax (CGT) you pay when you sell or close a business, or sell shares in one. For disposals made from 6 April 2026, the BADR rate is 18%, and the relief applies up to a lifetime allowance of £1 million.

BADR used to be known as Entrepreneurs’ Relief, and is the same scheme, just with a new name. So, if you claimed Entrepreneurs’ Relief in the past, those gains still count towards your BADR lifetime allowance.

Company owners wanting to make the most of BADR can close a solvent business through a Members’ Voluntary Liquidation rather than simply taking the remaining funds as dividends. Whether you’re eligible for BADR should be discussed with your accountant. 

How does Business Asset Disposal Relief work?

When you make a qualifying disposal, such as selling shares in your company or closing it down and distributing the assets, BADR reduces the CGT rate to 18% instead of 24%. 

Business Asset Disposal Relief: HMRC rules mean it isn’t automatic; you need to claim it. HMRC Business Asset Disposal Relief claims are made through your Self Assessment tax return, or via a separate claim form if you don’t normally complete Self Assessment.

The Business Asset Disposal Relief legislation sets out the detailed conditions, and HMRC’s guidance explains how they apply. 

Business Asset Disposal Relief rules

Whether you qualify usually comes down to three main things:

1. What you’re disposing of
2. How long you’ve owned it
3. Your relationship to the business

You need to have owned the business or its shares for at least two years before the disposal, and the business must be a trading company rather than one that mainly holds investments.

How to qualify for BADR?

Whether you qualify for BADR depends on the type of disposal you’re making. The most common ways are selling all or part of a sole trader or partnership business, or selling shares in (or closing) a personal trading company. 

Business Asset Disposal Relief eligibility

To be eligible for BADR, you must meet the following requirements:

• The business has been trading for at least two years before the disposal.
• If you’re disposing of shares, the company has been your “personal company” for at least two years, meaning you held at least 5% of the shares and voting rights.
• You’ve been an employee or officeholder (such as a director) of the company for at least two years prior to the disposal.
• The company has been a trading company, not mainly an investment company, throughout that period.

What are Business Asset Disposal Relief requirements?

If you’re closing a limited company, the three main requirements are: 

1. You must hold at least 5% of the shares. 
2. You must have owned them for at least two years. 
3. You must be an employee or director of the company.

BADR conditions

The BADR conditions that all need to be met for a successful claim include:

• The 5% minimum shareholding and voting rights for share disposals.
• A minimum two-year qualifying period immediately before the disposal.
• The company was a trading company throughout that period.
• You are holding a role as an officer or employee of the company.

These Business Asset Disposal Relief conditions apply whether you’re selling the business outright or closing it down through liquidation. If any of the BADR conditions aren’t met, HMRC can refuse the claim, so it’s worth checking your position well before any disposal.

Business Asset Disposal Relief lifetime allowance

The Business Asset Disposal Relief lifetime allowance is currently £1 million. It’s a cumulative limit across your lifetime, not per disposal. So, if you’ve claimed BADR before on previous gains, those amounts count towards your Business Asset Disposal Relief limit.

The BADR lifetime limit used to be much higher: under the old Entrepreneurs’ Relief rules, it was £10 million, but it was cut to £1 million for disposals made on or after 11 March 2020. Anything above the £1 million lifetime allowance is taxed at the standard CGT rate.

Business Asset Disposal Relief on liquidation

BADR is one of the main reasons solvent companies choose to close through a formal liquidation process rather than simply paying dividends. Claims on liquidation usually arise when a company is wound up through a Members’ Voluntary Liquidation, with the proceeds distributed to shareholders who qualify for the reduced rate.

BADR for closing a limited company

When a solvent limited company is closed down, any retained profits paid out to shareholders are normally treated as capital rather than income, and capital gains can qualify for BADR. That means shareholders may pay the BADR rate (18% for disposals from 6 April 2026) on the amounts they receive, rather than income tax on dividends. This can be considerably higher for higher and additional-rate taxpayers.

The Business Asset Disposal Relief lifetime allowance still applies, so anything over the BADR limit of £1 million won’t get the reduced rate. This works the same way for any limited company claim, whatever the company’s size or sector.

BADR in a Members’ Voluntary Liquidation (MVL)

Business Asset Disposal Relief MVL claims are one of the main reasons directors choose this route to close a solvent company. In an MVL, a licensed Insolvency Practitioner is appointed to formally wind up the company, sell any remaining assets, and distribute the proceeds to shareholders.

Money distributed through an MVL is usually treated as a capital payment rather than income. Which means, if you meet the BADR criteria, you may be able to pay the lower CGT rate on the money you receive. For company owners who have built up large amounts of retained profits, this can mean substantial tax savings compared to taking the same amount out as dividends over several years.

Business Asset Disposal Relief changes

Business Asset Disposal Relief rules have changed a lot over the past couple of years. The rate rose from 10% to 14% for disposals from 6 April 2025, then to 18% for disposals from 6 April 2026.

There has also been speculation about whether Business Asset Disposal Relief will be scrapped altogether. The rate has risen twice in recent years, but the relief itself hasn’t been abolished, and there’s no confirmed plan to remove it. Despite the increases, BADR still offers savings compared to the standard CGT rates, and the £1 million lifetime allowance hasn’t changed. 

If you’re planning to sell or close a business, speaking to your accountant early can help you understand which rules apply and whether any future changes could affect you.

How to claim Business Asset Disposal Relief?

To claim BADR, you need to make a claim to HMRC, as it isn’t applied automatically. Most people claim through their Self Assessment tax return for the year the disposal took place. If you don’t normally complete a Self Assessment return, you can use HMRC’s separate BADR claim form instead.

For example, if you sold or closed the business in the tax year ending 5 April 2027, your deadline to claim would be 31 January 2029.

The information above is general guidance based on the current HMRC rules and isn’t personal tax advice. Whether BADR applies to your specific situation depends on your individual circumstances, so it’s always worth checking with your accountant or a tax adviser before making any decisions.

How the Liquidation Centre can help with BADR

If you’re considering closing a solvent company and want to learn more about Business Asset Disposal Relief (BADR), our team can help.

As licensed Insolvency Practitioners, we regularly handle Members’ Voluntary Liquidations (MVLs) for directors looking to close their company in a tax-efficient way. We can talk you through the BADR conditions, the MVL process, and realistic timescales for distributing funds.

We can’t tell you whether you’ll qualify for BADR, as that’s something your accountant or tax adviser will need to assess. What we can do is explain how an MVL works and work alongside your advisers if you decide to proceed. During liquidation, we can put you in touch with a tax adviser and work alongside them to make sure the liquidation is structured correctly.