Measure
The Chancellor has announced changes to Business Asset Disposal Relief (BADR), restricting the capital gains tax (CGT) relief available to qualifying business owners.
Under the rules that applied immediately before the Budget, BADR reduces the rate of CGT on qualifying disposals of business assets to 18%, compared with the standard 24% rate that applies to higher and additional rate taxpayers, subject to a lifetime limit of £1m of qualifying gains per individual. The rate at which BADR gains are taxed has risen twice in recent years, from 10% for disposals before 6 April 2025, to 14% for disposals between 6 April 2025 and 5 April 2026, and to 18% for disposals on or after 6 April 2026, with the lifetime limit unchanged at £1m throughout the recent CGT rate changes.
BADR will be restricted with effect from 6 April 2027 by reducing the lifetime limit to £500,000.
The government has said this change will raise £305 million a year by 2031/32.
Individuals disposing of trading businesses, or shares in a trading company, who currently qualify for BADR, including company directors and employees with at least a 5% shareholding, sole traders and partners.
The change will take effect from 6 April 2027. There are special provisions that apply to contracts entered into before 6 April 2027 that have not been completed, and for certain share reorganisations and exchanges of securities not completed before 6 April 2027. .
A further restriction of BADR continues the trend since Budget 2024, when the rate was set on a path from 10% to 18% by April 2026. Further narrowing the relief through the lifetime limit reduces its value still further for business owners who are selling their businesses, including those who are selling on retirement. BADR (formerly Entrepreneurs' Relief) gave a maximum of £1.8million relief per individual when a 10% CGT rate applied to BADR gains and a 28% CGT rate applied to other gains. The gradual reduction in the BADR lifetime limit and changes in CGT rates means that the maximum tax saving per individual is now £60,000. This will reduce even further still to £30,000 from 6 April 2027.
The further reduction in relief may encourage some business owners to bring forward planned company sales ahead of 6 April 2027. However, the commercial timetable and the special provisions for uncompleted contracts and share reorganisations mean that not every transaction agreed before that date will benefit from the existing lifetime limit.
Although BADR is being restricted, those who qualify for BADR may benefit from a new relief called CGT Founders’ Relief which is being introduced from 6 April 2027, offering a reduced 10% CGT rate on up to £10m of lifetime gains. Please see our separate note on Founders’ Relief for further details.