For years, the relief was the quiet reason many UK owners sold when they did. It is still worth having, but it is worth less than it was, and the conditions are tested over a period that starts two years before the sale. This guide sets out the rules as GOV.UK states them, and what they mean in practice. It is general information, not tax advice.
What the relief does
Business Asset Disposal Relief, formerly Entrepreneurs' Relief, reduces the Capital Gains Tax you pay when you sell all or part of your business, or your shares in your trading company. Qualifying gains are taxed at a lower rate, up to a lifetime limit of £1 million of gains.
The rate, and why it matters less than it did
According to GOV.UK, qualifying gains are taxed at:
- 10% on disposals on or before 5 April 2025;
- 14% on disposals between 6 April 2025 and 5 April 2026;
- 18% on disposals from 6 April 2026.
Normal Capital Gains Tax rates are 18% on gains within the basic-rate band and 24% above it. So the relief now gives the same rate a basic-rate taxpayer already pays. The saving is on gains that would otherwise be taxed at 24%: six percentage points, on up to £1 million of gains.
An illustration
An owner who is a higher-rate taxpayer sells their shares for a gain of £1,500,000, with no other gains or losses in the year, and qualifies for the relief. Using the £3,000 annual exempt amount against the part of the gain without relief:
- With the relief: £1,000,000 at 18% is £180,000, plus £497,000 at 24% is £119,280. Total £299,280.
- Without it: £1,497,000 at 24% is £359,280.
The relief is worth £60,000 in this example, which is also the most it can now save anyone with gains above the basic-rate band. Real money, but no longer a reason on its own to time a sale.
Who qualifies when selling shares
GOV.UK sets out the main conditions. For at least two years up to the date of sale:
- you must be an employee or office holder, such as a director, of the company or another company in the same group;
- the company's main activities must be trading, or it must be the holding company of a trading group;
- the company must be your "personal company": you hold at least 5% of the shares and voting rights, and are entitled to at least 5% of either the distributable profits and assets on a winding up, or the proceeds if the company is sold.
Shares acquired through an EMI share option scheme follow different rules: the 5% test does not apply, but the option must have been granted at least two years before the sale.
Who qualifies when selling a business you own directly
If you are a sole trader or a partner, you must have owned the business, and traded as a sole trader or partner, for at least two years up to the date of sale. The same conditions apply if you close the business rather than sell it, and the assets must then be disposed of within three years.
Where owners get caught
- The two-year clock. If anything breaks a condition, such as stepping down as a director, diluting below 5%, or the company drifting into investment rather than trading, the two years can restart. Fixing it the month before a sale is too late.
- Cash and investments in the company. A trading company that holds substantial investments or surplus cash may not count as trading. This is a common reason for advisers to recommend tidying the balance sheet well before a sale.
- Dilution. If new shares take you below 5%, GOV.UK explains you may be able to elect to be treated as having sold and bought back your shares just before the issue. That is a technical election to take advice on, not a default.
- Deferred and contingent payments. Earn-outs and deferred consideration can be taxed in ways that change how the relief applies. Have your adviser model the structure, not just the headline price.
Claiming it
You claim the relief through your Self Assessment tax return, or in writing to HMRC. The deadline is the first anniversary of the 31 January following the tax year of the sale. For a sale in the 2025 to 2026 tax year, GOV.UK gives the deadline as 31 January 2028.
What to do now
If a sale is two years or more away, ask your accountant to confirm today that you meet every condition, and to tell you what could break one. Then put the answer in your exit plan, so nobody changes your shareholding, your role or the company's balance sheet without checking first. To see what your shares might be worth before tax, use the valuation calculator, and read how a buyer builds a price.
Common questions
What is the Business Asset Disposal Relief rate?
According to GOV.UK, qualifying gains are taxed at 18% for disposals from 6 April 2026. The rate was 14% between 6 April 2025 and 5 April 2026, and 10% on or before 5 April 2025.
Is Business Asset Disposal Relief the same as Entrepreneurs' Relief?
Yes. Entrepreneurs' Relief was renamed Business Asset Disposal Relief in 2020. The lifetime limit is now £1 million of qualifying gains.
When do I have to claim it?
By the first anniversary of the 31 January after the tax year of the sale. GOV.UK gives the example that for a sale in the 2025 to 2026 tax year, the deadline is 31 January 2028.
General information to help you prepare, not tax, legal or financial advice. Rates and rules change; check the current position and take advice on your own circumstances.
