Business Asset Disposal Relief: What Business Owners Need to Know for 2027

What is Business Asset Disposal Relief?

Business Asset Disposal Relief, formerly Entrepreneurs' Relief, is a Capital Gains Tax relief for individuals and some trustees who dispose of all or part of a business, or of shares in their "personal company". Qualifying gains are taxed at 18% for disposals from 6 April 2026, rather than at the 24% main rate that would otherwise usually apply to a higher-rate taxpayer.(GOV.UK) The relief is capped by a lifetime limit on the total qualifying gains an individual can claim against.

It is a relief, not an entitlement. It applies only where the conditions are met for the particular disposal, and it is claimed through your tax return.

What changed in Budget 2026?

Budget 2026 announced that the BADR lifetime limit will fall from £1m to £500,000 for qualifying disposals made on or after 6 April 2027.(HMRC) The 18% rate is unchanged. HMRC's policy paper says the reduced limit must take account of relief claimed on qualifying gains in the past, and estimates that around three-quarters of claimants will still receive relief on their entire gain.(HMRC) The overview of tax legislation confirms the measure will be legislated in Finance Bill 2026-27.(HMRC)

Does selling before 6 April 2027 help?

A qualifying disposal made before 6 April 2027 is measured against the £1m limit. For some owners whose sale is already well advanced, that may matter. For most owners, it is not a reason to bring a sale forward.

A good transaction usually takes months of preparation and a sale process often runs six to twelve months. A rushed process can reduce the price, shift more consideration into deferred or conditional payments, weaken negotiating position or leave a business poorly prepared for due diligence. On the illustration above, the maximum tax difference is £30,000; a weaker price, structure or handover can easily cost more than that.

HMRC also proposes anti-forestalling rules. Where a contract is unconditional but not completed before 6 April 2027, gains will be subject to the £500,000 limit unless the parties can show they did not enter into the contract with a purpose of obtaining a tax advantage from the timing rule; for connected parties, that the contract was entered into for wholly commercial reasons. A statement is required where the gain exceeds £100,000. Separate rules apply to some share reorganisations and exchanges where an election is made on or after 6 April 2027.(HMRC)

Why Heads of Terms do not by themselves determine the tax treatment

Heads of Terms record the main commercial points of a proposed deal, such as price, structure and timetable. They are normally expressed to be non-binding on those points, and they are not the disposal for Capital Gains Tax. Under the general timing rule, a disposal under a contract is usually treated as made when the contract is made (or, for a conditional contract, when the condition is satisfied), not necessarily at completion.(HMRC)

Whether and when a binding contract exists, how conditions are drafted, and how the proposed anti-forestalling rules apply are questions for your solicitor and tax adviser. Signing Heads of Terms before 6 April 2027 does not by itself secure the current limit.

BADR and retirement planning

For many owners the business is the largest part of their retirement wealth, so BADR affects the figure that matters most: what reaches you after tax. That figure depends on several layers, not just the relief.

• Market value and realistic proceeds. What a buyer would actually pay, based on sustainable profit and risk, not a hoped-for multiple. See business valuation and value planning.
• Net proceeds, not headline consideration. Debt, cash and working-capital adjustments, fees, deferred and earn-out payments and tax all change what you receive, and when.
• Financial preparation. Reliable accounts, normalised earnings and clear records support price and reduce renegotiation in due diligence.
• Owner dependency. A business that relies on you personally is worth less and is harder to sell on clean terms. See owner dependency and management readiness.
• Strategic buyer readiness. Buyers pay for what transfers: customers, contracts, people and systems.
• Handover. Many buyers expect the owner to stay for a transition period, which affects retirement timing.
• Transaction timetable. Preparation, marketing, negotiation, due diligence and legal completion each take time.
• Tax and legal advice before binding steps. Restructuring, share reorganisations and contract terms can affect eligibility and timing.

Tax should inform the sale timetable, not dictate it. A retirement plan built on a realistic value, a prepared business and a sensible timetable is usually worth more than a rushed sale to fit a tax date. See business retirement planning.

What if my exit is in 2027, 2028 or later?

Owners planning to exit after 6 April 2027 should plan on the £500,000 limit, less any past claims, and treat the remaining gain as taxed at the main rates current at the time. That makes the commercial drivers even more important: value, readiness, structure and timing. The years before a 2028 or 2029 exit are exactly when owner dependency can be reduced, management strengthened and records prepared. The business exit timeline sets out what typically happens at each stage.

BADR versus Founders' Relief

Budget 2026 also proposed a new Founders' Relief: a 10% rate on up to £10m of lifetime qualifying gains for founders and early investors of high-growth, innovative companies.(HMRC) It is subject to consultation and is aimed at a much narrower group: proposed tests include holding 25% from the start of trading, at least £10m turnover and 15 qualifying employees, and meeting growth or R&D tests. Most established owner-managed businesses will be assessed under BADR. Claims to BADR made from 6 April 2027 are proposed to reduce the Founders' Relief limit.