BADR (Business Asset Disposal Relief) for company directors

If you are closing down your limited company – due to retirement, a career change, or the impact of the Off-Payroll (IR35) rules – you may be able to reduce the tax you pay on the funds you extract. This is where Business Asset Disposal Relief (BADR) comes in.

Updated 28 October 2026: The Budget cuts the BADR lifetime limit from £1 million to £500,000 for qualifying disposals from 6 April 2027. The BADR tax rate remains 18%. See our Budget 2026 summary.

BADR can apply whether you close the company via a simple voluntary strike-off (where distributions are below £25,000) or through a formal Members’ Voluntary Liquidation (MVL) if reserves are higher.

In both cases, distributions may be treated as capital rather than income, provided the relevant conditions are met.

BADR lets qualifying business owners pay capital gains tax at a reduced rate of 18% from 6 April 2026 (up from 14% in 2025/26), instead of the higher standard rates.

This can significantly increase the proportion of your company’s funds you can keep after tax.

In this guide, we explain the eligibility rules, how BADR works in practice, and how to claim it.

What is business asset disposal relief?

Business Asset Disposal Relief applies a reduced Capital Gains Tax rate to qualifying gains when you close or sell your business, subject to a lifetime limit of £1 million before 6 April 2027 and £500,000 from that date. This is significantly lower than the capital gains tax rates you’d pay otherwise.

Until 6 April 2020, business asset disposal relief was known as entrepreneurs’ relief. The government renamed it and reduced the lifetime limit from £10 million to £1 million from 11 March 2020.

BADR rates and allowances

The rate is 18% for disposals from 6th April 2026.

The BADR rate was 10% before April 2025, and 14% until 5th April 2026.

The Annual Exempt Amount for capital gains tax is £3,000 for 2026/27.

The BADR lifetime limit is £1 million for disposals before 6 April 2027, reducing to £500,000 from that date. Previous BADR claims count towards the limit.

Who is eligible for business asset disposal relief?

The eligibility criteria for business asset disposal relief are different depending on what you’re disposing of:

• If you’re closing or selling all or part of your business:
  • You must have owned it, or been part-owner, for at least two years.
  • If you’re closing down the business, you must also sell all your business assets within three years.
• If you’re selling shares in a company you’ve invested in:
  • The company must be a trading company. Substantial non-trading activities, such as investments, can affect eligibility.
  • You must own at least 5% of the company’s shares and voting rights.
  • You must have owned the shares for at least two years to be eligible for business asset disposal relief.
  • You must also meet the economic-interest conditions, broadly involving at least 5% of profits and assets on winding up, or at least 5% of company sale proceeds.
  • You must have been an employee or office holder of the company for at least two years.

Many contractors who own and run their limited companies will meet the BADR conditions, but being a director isn’t enough on its own. The shareholding, trading-company and two-year qualifying conditions must also be satisfied.

Even if you’re partnered with someone else, you probably have more than the requisite 5% of shares and voting rights.

If you’re one of the rare IT contractors who work as sole traders or are in a partnership, you also qualify for business asset disposal relief, provided you’ve been a sole trader or a partner for at least two years before selling your business.

For obvious reasons, you won’t qualify for business asset disposal relief if you work through an umbrella company. This is because no umbrella company gives you an ownership stake. You’re just an employee.

How BADR works in practice

For example, let’s say you’ve decided to close your contracting business and call it a day. After settling its liabilities, the company has £150,000 remaining in its bank account. If this is distributed as capital, your taxable gain depends on the distribution and your allowable share costs.

As with income tax, there’s a yearly tax-free capital gains tax threshold called the annual exempt amount. This is currently a miserly £3,000 per year (2026/27).

If your capital gain is £150,000 and you can use the £3,000 annual exemption, £147,000 is taxable. Without BADR, that gain would be taxed at the standard CGT rates.

For the 2026/27 tax year, the Capital Gains Tax (CGT) rates for individuals are:

• 18% for gains within the basic rate income tax band.
• 24% for higher rate and additional rate taxpayers.

These rates apply whether the gain relates to residential property or other chargeable assets such as shares.

By contrast, with business asset disposal relief, you’d pay the BADR rate on the qualifying gains up to your lifetime limit. For disposals from 6 April 2026, the BADR rate is 18%.

For a straightforward comparison, assume the whole £147,000 would otherwise be taxed at 24%.

Without BADR, much or all of the £147,000 could be charged at 24% if you are a higher or additional rate taxpayer.

With BADR, the qualifying portion is charged at 18% for disposals from 6 April 2026.

On that assumption, CGT would be £35,280 without BADR and £26,460 with BADR – a saving of £8,820. The new £500,000 lifetime limit would not change this example.

Using BADR via an MVL

If you are closing a company with significant reserves, BADR is often accessed via an MVL (Members’ Voluntary Liquidation).

By contrast, if you close via voluntary strike off, capital treatment is generally limited to total distributions of up to £25,000.

Above that level, distributions are taxed as dividends unless you use an MVL.

This £25,000 point is a tax treatment threshold rather than a Companies House rule. An MVL normally allows distributions to be treated as capital, but BADR applies only if the shareholder meets the relief’s separate conditions.

How do you claim business asset disposal relief?

You can claim business asset disposal relief in one of two ways:

• On your self assessment tax return for the tax year in which you’ve closed or sold your business.
• Alternatively, by filling in Section A of the HMRC Business Asset Disposal Relief Helpsheet.

You can claim more than once, subject to your remaining lifetime limit – £1 million for disposals before 6 April 2027 and £500,000 from that date.

Gains above your remaining BADR lifetime limit are subject to the usual Capital Gains Tax rates.

Anti-avoidance rules

The Targeted Anti-Avoidance Rule (TAAR) can apply where someone winds up a company, becomes involved in the same or a similar trade within two years, and obtaining an income tax advantage is one of the main purposes of the winding up. It isn’t an automatic ban on returning to similar work.

The TAAR aims to prevent phoenixing.

For example, taking the funds and immediately starting a near-identical company could result in the distribution being taxed as income rather than a capital gain.

For more on timings after liquidation, see our separate guide: how long after an MVL before you can start a new company.
If you’re considering selling or closing your contracting business, talk to your accountant before you do anything else.

This article is for general information only and does not constitute professional advice. Tax rules change, and their impact depends on your circumstances. Always seek advice before taking action.