In this excerpt from the report 'Exit and Succession Tax Planning for Businesses', Sarah Bradford goes through the key conditions and tax implications of claiming Business Asset Disposal Relief (BADR) when disposing of shares in a personal or family company.
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The preferred exit strategy may be to sell the company as a going concern. This involve a disposal of the shares in the company which may give rise to a chargeable gain. Business Asset Disposal Relief (BADR) is a valuable capital gains tax relief which reduces the capital gains tax payable on the disposal.
The relief may also be claimed where shares in the personal or family company are given away if Gift Hold-over Relief is not claimed. This can sometimes be a good option if BADR is unlikely to be available on the subsequent sale of the shares, for example, if the transferee sells them within two years.
Where BADR is available, from 6 April 2026, gains qualifying for the relief are taxed at 18%. This is the same as the lower rate of capital gains tax applying where income and gains do not exceed the basic rate band. BADR is subject to a lifetime limit of £1 million. Spouses and civil partners have their own lifetime limit. Once the lifetime limit has been used, further gains that would otherwise meet the conditions for BADR are taxed at the normal capital gains tax rates.
BADR is available on the disposal of shares in the shareholder’s personal company. The shares must be disposed of while the company is a trading company or, where the shares are held in a holding company of a group, while the company is a trading group, or within three years of the date on which the company ceased to be a trading company or the member of a trading group.
If the business is owned by a company and the disposal is of shares or securities in that company, for BADR relief to be available, for the two-year qualifying period, the company must be:
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the shareholder’s personal company; and
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either a trading company or the holding company of a trading group.
The shareholder must be an officer (such as a director) or an employee of the that company, or an officer or an employee of one or more of the members of the trading group.
A personal company is one in which the person holds at least 5% of the ordinary share capital and the holding gives the shareholder at least 5% of the voting rights. In addition, the shareholder must be entitled to at least 5% of the profits available for distributions and 5% of the distributable assets on the winding up of a company, which must come from the shareholder’s holding of ordinary share capital or at least 5% of the proceeds in the event of a company sale.
To meet these conditions, it is not necessary for a distribution to be made, a winding up to take place or the company to be sold. The conditions are based on what would happen if these events occurred.
The two-year qualifying period generally runs to the date on which the shares are disposed. However, if the company ceases to be a trading company or a member of a trading group within the three years prior to the date of the disposal of the shares, the qualifying period ends on the date on which the company ceased to be a trading company or a member of a trading group.
It is not necessary to sell all the shares to qualify for BADR – a material disposal will also count.
The relief is also available if:
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the company is wound up and dissolved with the shareholder’s shares being cancelled and a capital distribution is made in the course of a winding up; or
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any other capital distribution is made.
In these cases, the qualifying conditions must be met throughout the two-year period that ends on the date that the capital distribution is made or, if earlier, on the date on which the company ceased to be a trading company and the capital distribution is made within three years of the cessation.
The relief is not given automatically and must be claimed. The claim must be made in the Self-Assessment tax return, in writing to HMRC or by completing the claim form which is available on the Gov.uk website at www.gov.uk/government/publications/entrepreneurs-relief-hs275-self-assessment-helpsheet. It must be made by the first anniversary of the 31 January following the end of the tax year in which the disposal.
Further information on BADR can be found in Helpsheet HS275.
Example 16: BADR on sale of shares in a family company
Isabelle is a director in a family company. She has owned 25% of the ordinary share capital for 30 years. This holding gives her 25% of the voting rights and an entitlement to 25% of the profits available for distributions, 25% of the assets available if the company is wound up and 25% of the proceeds if the company is sold.
The company is a trading company.
Isabelle retires selling her shares in the company. She makes a gain of £750,000. She has not made any previous gains qualifying for BADR. She has already used her 2026/27 annual exempt amount and has other income of £70,000.
In the absence of BADR, Isabelle will pay capital gains tax of £180,000 (£750,000 @24%). Claiming BADR means that the capital gains tax bill is reduced to £135,000, saving Isabelle £45,000.
It is important to plan ahead for the disposal to ensure that the qualifying conditions have been met throughout the qualifying period.
