Business Asset Disposal Relief is the capital gains tax relief that many business owners still know by its former name, Entrepreneurs’ Relief. It was renamed from 6 April 2020, and at the same time the amount of gain it can shelter was cut sharply, so any guidance still referring to the old regime should be treated with caution. The relief now applies a reduced rate of capital gains tax to qualifying gains up to a lifetime limit of £1 million, reduced from £10 million in March 2020. The rate itself has risen in steps, from 10% to 14% for disposals on or after 6 April 2025, and to 18% for disposals on or after 6 April 2026. Measured against the main rate of 24% that would otherwise apply, the relief is now worth up to around £60,000 across a lifetime of qualifying disposals. Less generous than it once was, then, but still well worth securing, and still easy to lose through inattention to the conditions.
When it applies
Broadly, the relief is available on the disposal of the whole or part of an unincorporated business, on the disposal of business assets within three years of a business ceasing, and on the disposal of shares in a personal trading company. For shares, the essential tests are that throughout the two years ending with the disposal the company was a trading company or the holding company of a trading group, the individual held at least 5% of the ordinary share capital and voting rights and met the associated economic entitlement tests, and the individual was an officer or employee. The trading requirement is where claims most often come unstuck, because a company carrying substantial investment activity alongside its trade may fall outside the relief altogether, and a founder whose shareholding has been diluted below 5% by an investment round may not realise they have lost it. Investors’ Relief, a separate relief for those backing early stage trading companies, now shares the same £1 million lifetime limit and the same 18% rate.
The value in this area lies almost entirely in planning ahead. There is real benefit in checking, well before any sale, that each intended claimant still meets every condition, that the company remains clearly a trading company, and that both spouses’ lifetime limits are used where a couple hold the business between them. Where an outright sale is not the goal, a disposal to an employee ownership trust can offer an alternative worth weighing. If you or your client is contemplating a sale, an exit or a succession, please talk to us early, because the room to improve the outcome closes quickly as a transaction takes shape.