Business Asset Disposal Relief Limit Set to Halve to £500,000 From 6th April 2027

Selling a business or shares can have significant tax implications, particularly when you have built up value over many years. Business Asset Disposal Relief can reduce the Capital Gains Tax due on qualifying disposals, but the rules and limits matter when planning a sale. This guide explains the change, who it may affect and what business owners should consider before disposing of qualifying assets.

What is Business Asset Disposal Relief?

Business Asset Disposal Relief, usually shortened to BADR, is a Capital Gains Tax relief for certain people who sell qualifying business assets. It can reduce the rate of Capital Gains Tax on eligible gains. It was previously known as Entrepreneurs’ Relief.

It may be available when an individual sells all or part of a business, or disposes of shares in a qualifying personal company. Some trustees can also claim, but only where the trust and beneficiary meet specific conditions. Simply owning a business or holding company shares is not enough on its own.

For qualifying disposals made from 6th April 2026, the BADR rate is 18%. The lifetime limit determines how much of a person’s qualifying gain can benefit from that rate. It is not the sale price of the business and it is not a tax-free allowance.

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What is planned from 6th April 2027?

The government plans to reduce the lifetime limit for qualifying gains from £1 million to £500,000. The change is due to apply to qualifying disposals made on or after 6th April 2027. HMRC says the measure will be legislated for in the Finance Bill 2026.

The relief itself is not being abolished, and the 18% BADR rate is not being changed by this measure. What is changing is the total amount of qualifying gains that can benefit from the relief over an individual’s lifetime.

HMRC estimates that around 75% of people who claim BADR will still receive relief on their full qualifying gain. It estimates that approximately 13,000 people could be affected because some of their gains will no longer qualify for the reduced rate. The change is therefore most relevant to people with larger gains or previous BADR claims.

The reduction is about the amount of gain that can receive the relief, not the amount of tax someone can save. Any gain above the available BADR lifetime limit is normally taxed at the applicable Capital Gains Tax rate for that disposal, rather than the 18% BADR rate.

How does the £500,000 lifetime limit work?

The limit applies across qualifying disposals over a person’s lifetime, rather than being available again for every business sale. The new limit also takes account of qualifying gains on which BADR has already been claimed. It is not a fresh £500,000 allowance for everyone on 6th April 2027.

For example, imagine an individual has already claimed BADR on £300,000 of qualifying gains. If they later make another qualifying disposal to which the £500,000 limit applies, only a further £200,000 of qualifying gains would remain within that lifetime limit. This is an illustration of the headline calculation, not advice on an individual’s tax position or the detailed transitional provisions.

HMRC’s current guidance explains that when qualifying gains and earlier gains on which BADR has been claimed exceed the applicable lifetime limit, the excess does not receive the reduced BADR rate. The precise treatment depends on the disposal date and the rules applying to that disposal.

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Who can claim Business Asset Disposal Relief?

BADR is available to individuals and some trustees of settlements. It is not a relief that companies claim themselves. The qualifying conditions depend on what is being sold and the person’s connection with the business.

Sole traders and business partners

A sole trader or business partner may qualify when disposing of all or part of a business, provided the relevant ownership and trading conditions are met for the required qualifying period. Different conditions can apply if only some business assets are being sold or if the business has stopped trading.

Company directors and shareholders

A person selling shares may qualify where the company is their personal company and the relevant officer or employee, shareholding and trading-company conditions are satisfied. A directorship alone does not guarantee eligibility. The conditions generally need to be met over the qualifying two-year period, subject to the specific rules for the disposal.

Trustees

Some trustees can claim BADR on a disposal of business assets held in a settlement. The claim is subject to conditions involving the trust, the beneficiary and the nature of the assets. HMRC’s guidance makes clear that the relief is not available to every type of trust, including a trust that is an entirely discretionary settlement.

Trustees generally make a joint claim with the qualifying beneficiary. Anyone dealing with a trust disposal should check the detailed HMRC conditions rather than assume that the individual lifetime limit applies to the trust in the same way in every situation.

What happens if you have already claimed BADR?

Previous qualifying gains on which BADR has been claimed are taken into account when working out how much of the lifetime limit remains. Someone who has already used a substantial part of the £1 million limit may therefore have less than £500,000 of relief available for a later disposal after the change.

The important point is that the lifetime limit is cumulative. It is not reset when the new limit begins. Keep records of earlier disposals and BADR claims, as those figures may be needed when calculating the amount of relief available on a future sale.

What if you agree to sell before 6th April 2027 but complete afterwards?

There are special provisions for certain contracts entered into before 6th April 2027 that have not completed by that date. The transitional rules are designed to prevent people obtaining the old £1 million limit simply by bringing forward the date of a contract for tax reasons.

Under the announced rules, gains on an unconditional contract made before 6th April 2027 can still be subject to the proposed £500,000 cap unless the parties can demonstrate that the contract was not entered into for the purpose of obtaining a tax advantage because of the timing rule in section 28 of the Taxation of Chargeable Gains Act 1992. Where the parties are connected, the contract must have been entered into for wholly commercial reasons.

Where the relevant gain exceeds £100,000, a statement must also be made where the conditions for the exception are relied on. The exact requirements should be checked against the legislation and HMRC guidance in force when the contract is made or completed.

Signing an agreement before the change does not automatically secure the previous limit. The circumstances, the relationship between the parties and the reason for the timing all matter.

Are share reorganisations and exchanges covered by special rules?

HMRC has also announced a specific rule for certain share reorganisations and exchanges of shares or securities that have not been completed before 6th April 2027. It concerns situations where a person elects not to apply the normal Capital Gains Tax share reorganisation treatment so that BADR can be claimed.

The announced provisions cover specified reorganisations within a single company and exchanges of shares between companies with particular ownership or control relationships. They apply where the individual still meets the BADR conditions on 6th April 2027 and makes the relevant election on or after that date. In those circumstances, the disposal is treated as taking place when the election is made, so the £500,000 limit applies.

These provisions are technical and depend on the exact share structure and the election made. Anyone considering a company reorganisation before a sale should take tax advice and check the final legislation rather than assume that a reorganisation protects the old lifetime limit.

Does the BADR tax rate change as well?

No. The planned measure to reduce the lifetime limit does not change the BADR rate. Qualifying gains that remain within the applicable lifetime limit continue to be taxed at 18% for disposals made from 6th April 2026, including the 2027/28 tax year.

The 18% rate is the rate of Capital Gains Tax on qualifying gains within the available limit. The £500,000 figure is the maximum lifetime amount of qualifying gains that can benefit from the relief under the proposed rules.

Do you need to do anything before April 2027?

There is no general application or registration to complete because of this announcement. However, if you are considering selling a business or shares, it may be sensible to review previous BADR claims, the likely timing of the disposal and whether you meet the qualifying conditions.

Do not assume that bringing a sale forward or signing a contract before April 2027 will preserve the old limit. The transitional provisions are specific, and the tax outcome can depend on facts that are not obvious from the completion date alone. A tax adviser can help assess the position before you commit to a transaction.

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Does the change apply across the UK?

Yes. This is a UK-wide Capital Gains Tax measure. It applies to qualifying disposals made by people within the scope of the UK rules, rather than being a change limited to England, Scotland, Wales or Northern Ireland.

This article provides general information about the announced change. Business Asset Disposal Relief depends on detailed eligibility and timing conditions. It is not personal tax advice. Check the current HMRC guidance or speak to a qualified tax adviser before making decisions about a business disposal.