Selling or Closing Your Trade Business — Capital Gains Tax and BADR (2026)

When Capital Gains Tax Applies

Capital Gains Tax is a tax on the gain you make when you dispose of an asset — broadly, the difference between what you get for it and what it cost you (plus allowable costs). When you exit a trade business, CGT can arise in three main ways:

• Selling your business or its assets: If you're a sole trader or partner and you sell the business as a going concern — or sell off business assets like goodwill, equipment or premises — the gain on those assets is potentially chargeable to CGT.
• Selling company shares: If you run your business through a limited company and you sell your shares (a "share sale"), the gain on the shares is a capital gain. This is the most common route when a competitor or buyer acquires an incorporated trade business.
• Extracting value when winding up a company: When you close a solvent limited company and distribute the remaining reserves to shareholders through a formal liquidation, those distributions can be treated as capital rather than income — bringing them within CGT rather than dividend taxation.

Note that a normal trade sale of a sole trader business is a disposal of the underlying assets, whereas selling an incorporated business is usually a disposal of shares. The distinction matters because the reliefs and conditions differ, and it's one of the first things an adviser will want to pin down.

Business Asset Disposal Relief (BADR)

Business Asset Disposal Relief — formerly known as Entrepreneurs' Relief, and still widely called that on the ground — is the headline relief for trade business owners. It reduces the rate of CGT charged on qualifying gains when you sell or close all or part of a business. For decades it was the reason so many business owners structured their exits the way they did.

The key point for 2026 is that the BADR rate has been rising. For many years it gave a flat 10% CGT rate on qualifying gains, but it has been increasing in stages toward the main CGT rate. Because the rate has changed and is scheduled to keep moving, you should not rely on the old 10% figure — check the current BADR rate with HMRC or your accountant before you make any decisions, as the difference between the relief rate and the standard rate could be several percentage points of your entire sale proceeds.

Even at the higher rate, BADR is still typically more favourable than the standard CGT rate on business assets, which is why qualifying for it — and not accidentally losing the qualification — remains central to exit planning.

The £1 Million Lifetime Limit

BADR is capped by a lifetime limit of £1,000,000 of qualifying gains. This is not a per-disposal allowance and it is not reset each year — it is the total amount of gains you can ever claim the relief on across your lifetime. If you sell one business for a £600,000 gain and claim BADR, you have £400,000 of the lifetime allowance left for any future qualifying disposal.

Gains above the lifetime limit are taxed at the standard CGT rates that apply to business assets. For owners of larger trade businesses, this cap is significant: the relief only shelters the first £1 million of qualifying gains, and everything above that is taxed normally. The lifetime limit has itself been reduced in the past, so treat the £1 million figure as the current position rather than a permanent fixture.

The Qualifying Conditions

BADR is not automatic. You have to meet conditions, and crucially they generally have to be met for a minimum period before the disposal. The most important conditions revolve around ownership and time.

Sole Traders and Partners

If you're a sole trader selling all or part of your business as a going concern, or a partner disposing of your share of a partnership, you generally need to have owned the business for at least two years up to the date of disposal. Selling isolated assets while you continue to trade does not usually qualify — the relief is aimed at disposals of the business (or an identifiable part of it), not a one-off sale of a van or a tool.

Company Shareholders

If your business is a limited company and you're selling shares, the conditions are tighter. For the two years before disposal you generally need to:

• Hold at least 5% of the ordinary shares and voting rights — making it your "personal company";
• Be entitled to at least 5% of the profits available for distribution and the assets on a winding up (the economic-interest tests);
• Be an officer or employee of the company (for example a working director); and
• Have the company be a trading company (or the holding company of a trading group).

All of these typically need to be satisfied throughout the two-year qualifying period ending with the disposal. If you fall below 5%, step back from being an officer or employee, or the company stops trading too early, you can lose the relief — which is exactly why timing the exit around these clocks is so important.

The Annual CGT Exempt Amount

Separately from BADR, every individual has an annual CGT exempt amount — a tax-free slice of gains each tax year. Gains within this allowance are not taxed at all, and it applies before you work out the tax on the rest. The allowance has been cut substantially in recent years, so it is now far smaller than it once was and shelters only a modest amount of gain.

Because the exemption is an annual figure, splitting a disposal across two tax years — where commercially possible — can let you use two years' worth of the allowance. It is a small saving relative to the headline numbers on a business sale, but it is part of the planning picture and is easy to overlook.

Winding Up a Company: MVL and Capital Treatment

Many trade businesses incorporated as limited companies build up retained profits — reserves — over the years. When the owner stops trading and wants to take that money out, the question is whether it comes out as income (dividends, taxed at dividend rates) or as capital (taxed under CGT, potentially with BADR).

A Members' Voluntary Liquidation (MVL) is the formal route for a solvent company. A licensed insolvency practitioner is appointed to wind the company up, settle its affairs and distribute the remaining reserves to shareholders. Distributions made in the course of a formal liquidation are generally treated as capital, so they fall within CGT rather than being taxed as dividends — and where the conditions are met, BADR may apply to reduce the rate.

For an owner with significant reserves, capital treatment can be more tax-efficient than drawing the money as dividends, but it depends entirely on the numbers, the current rates and anti-avoidance rules (such as the rules that can re-characterise a liquidation distribution as income if you carry on a similar trade afterwards). An MVL also carries the practitioner's fees and is a formal legal process — it is not a DIY job. This is firmly accountant-and-insolvency-practitioner territory.

Why Planning Ahead Matters

The single biggest mistake trade business owners make is leaving exit planning until they have a buyer at the table. By then, many of the levers have already gone. The conditions for BADR are tested over two years, so decisions you make today shape the relief you can claim two years from now.

• Mind the two-year clocks: Ownership periods, the 5% shareholding test and the officer/employee test all run for at least two years before disposal. Changing your shareholding or stepping back from the business too soon can break them.
• Time disposals across tax years: Splitting a sale across two tax years can use two annual exemptions and, depending on rate changes, may fall under different rules — worth modelling with an adviser.
• Watch for rate changes: Because BADR rates and the lifetime limit have been moving, the tax cost of selling this year versus next year can differ materially. Sometimes there is a window worth acting within.
• Get advice early: Company structure, share classes, who owns what and whether you're an employee all affect eligibility. These are far easier to fix two years out than two months out.

None of this is about being clever — it is about not tripping over conditions you didn't know existed. A short conversation with a tax adviser well before you sell can be worth a great deal in relief preserved.

Rules and Rates Change — Get an Accountant

This cannot be stressed enough: CGT rates, the BADR rate, the lifetime limit and the annual exempt amount all change frequently, often at Budgets and sometimes with little notice. The relief that was a flat 10% for years is now higher and still moving. Allowances that were generous have been cut. The conditions are detailed and easy to fall foul of.

Nothing in this article is tax advice for your situation. Selling, closing or passing on a business is usually the largest single tax event of an owner's working life, and the cost of getting it wrong dwarfs the cost of professional advice. Before you do anything, speak to a qualified accountant or tax adviser — and do it early enough that the two-year clocks still work in your favour.

Quick Reference: Does BADR Apply?

Indicative only. BADR rates, the lifetime limit and the conditions change frequently — confirm the current position with HMRC or a qualified adviser before acting.