Business owners planning an exit face higher tax rate from April – but there is still a window of opportunity

In this article, we explain how BADR works, highlight recent developments affecting eligibility and outline what business owners need to consider before the upcoming changes.

How does BADR work?

BADR may be available for certain business disposals, and has the effect of charging the first £1 million of gains qualifying for the relief at an effective rate of 14% for 2025/26. Strict eligibility conditions apply.

One such condition is that for companies, there is the need to qualify as ‘trading’ companies. The legislation defines this as not including ‘to a substantial extent activities other than trading activities’, and it can be a contentious area.

A recent case at the tax tribunal serves as a reminder of the importance of the trading condition. It concerned two taxpayers who had claimed BADR on the disposal of their shareholding in Chelsea Yacht and Boat Company Ltd. The company provided moorings, services and maintenance, and additional services such as repairs. The claim to BADR, however, was denied on the grounds that the company’s main source of income was from mooring fees and licences (non-trading income), rather than ‘trading’ activity, such as boat repairs.

We can help you review your eligibility for BADR on all fronts, and would recommend that you do this regularly, even if business exit is not on your immediate horizon. Getting it right now will keep your options open for the future.

BADR: What is changing after 5 April 2026?

While the lifetime limit remains at £1 million, the rate applied to qualifying disposals will rise to 18%, up from 14% (introduced in April 2025) and 10% previously.

Still time to access BADR at 14% rate (but a very short window)

For disposals made on or after 6 April 2026, the rate of CGT for BADR rises from 14% to 18%.

Where eligibility conditions are already met, it might be possible to consider making any qualifying disposal before April 2026 to take advantage of the current 14% rate of relief. This is a very short window for action. Please talk to us as a matter of priority if this is important to you.

For some, accelerating a sale or restructuring the deal could deliver significant savings. Others may want to explore alternative routes, such as family succession, Employee Ownership Trusts (although also facing tax changes from next year), or phased disposals, each with its own tax implications.