Do You Qualify for Business Asset Disposal Relief?
Business Asset Disposal Relief reduces the capital gains tax rate on qualifying business disposals, up to a £1 million lifetime limit. The rate rose to 18% for disposals made on or after 6 April 2026, and the qualifying conditions are stricter than most owners assume — several of them tested across the two years before the sale, not at the sale itself.
The relief is often discussed as though it applies automatically to anyone selling a business. It does not. It requires specific conditions to have been met continuously for at least two years, and the most common reason a claim fails is a share structure that was never designed with the tests in mind.
Because the conditions look backwards, they cannot be fixed at the point of sale. This article sets out what the relief is worth now, what the tests actually require, and where owners most often discover too late that they fall outside them.
In this article
Quick Summary
This may help you:
- You are considering selling your business or your shares in it
- You hold shares in a company you work for
- You have made a qualifying disposal before and are unsure of your remaining limit
- Your company has more than one class of share
Before deciding, check:
- Whether you meet all four 5% tests, not just the shareholding
- How long the conditions have been continuously met
- How much of your £1 million lifetime limit remains
- Whether the timing of exchange affects the rate
Part of the Tax Efficient Planning series
- Do You Qualify for Business Asset Disposal Relief?
- Capital Gains Tax Explained
- How to Reduce Capital Gains Tax Legally
- Investment Tax Explained
- Company Director Pension Contributions
What the relief is worth in 2026/27
Business Asset Disposal Relief charges qualifying gains at a reduced capital gains tax rate rather than the standard rates.
The rate has moved twice in quick succession. For disposals on or after 6 April 2025 the rate was 14%. For disposals on or after 6 April 2026 it rises to 18%. Any guidance still quoting 10% predates both changes, which is worth watching for given how much published material has not been updated.
At 18%, the relief now sits level with the lower standard rate on share disposals, and below the 24% that applies above the basic rate band. Our article on capital gains tax sets out the standard rates and how the bands interact.
The £1 million lifetime limit
Relief applies to qualifying gains up to a lifetime limit of £1 million, reduced from £10 million for disposals on or after 11 March 2020.
It is a lifetime limit, not an annual one. Earlier claims — including claims made under the former name of Entrepreneurs' Relief — count against it. Anyone who has sold a business before should establish what remains before assuming the full amount is available.
The 5% tests for company shares
For shares in your personal company, four conditions must be met, and the shareholding percentage alone is not enough. You must hold at least 5% of the ordinary share capital; that holding must give at least 5% of the voting rights; and, for disposals since 29 October 2018, you must be entitled to at least 5% of the profits available for distribution and 5% of the distributable assets on a winding up.
The last two tests are where structures fail. Alphabet share arrangements, growth shares and classes carrying restricted dividend or capital rights can all deliver 5% of the share capital while failing the economic tests. The company must also be a trading company or the holding company of a trading group, and you must be an officer or employee of it.
The two-year qualifying period
The conditions must be met throughout a period of two years. This is the point owners most often miss, because it makes the relief a function of history rather than of the transaction.
A share reorganisation shortly before a sale, a dilution below 5% following an investment round, or ceasing to be an employee or officer can each break the qualifying period and restart the clock. So can the company ceasing to trade, though a disposal within three years of cessation may still qualify where the conditions were met up to that point.
Where claims most often fail
In practice: share classes that carry 5% of capital but not 5% of profits or assets; dilution below the threshold after external investment; resigning as a director before completion; a company holding substantial non-trading assets, putting its trading status in question; and assets held personally outside the company, which fall under separate associated disposal rules.
None of these is exotic. Each is a normal commercial arrangement that happens to sit outside the tests, which is why the relief is worth checking early rather than at completion.
What to check before you exchange
Establish how long each condition has actually been met, with dates. Confirm the rights attaching to your share class from the articles, not from assumption. Check what remains of your lifetime limit. And take advice on timing, since the date of disposal determines which rate applies and HMRC operates anti-forestalling rules for unconditional contracts entered into before a rate change.
HMRC's helpsheet HS275 sets out the conditions in full and is the authoritative source: Business Asset Disposal Relief guidance on GOV.UK.
HMRC's helpsheet HS275 is also available here: HS275: Business Asset Disposal Relief 2026.
Key Considerations
| Factor | Why It Matters |
|---|---|
| Rate | 18% for disposals on or after 6 April 2026, up from 14% for 2025/26 disposals. |
| Lifetime limit | £1 million of qualifying gains across your lifetime, not per disposal. |
| Ordinary share capital | At least 5% required. |
| Voting rights | The holding must also carry at least 5% of votes. |
| Profits and assets | At least 5% of distributable profits and of assets on winding up. |
| Two-year period | All conditions must be met continuously for two years before disposal. |
| Trading status | The company must be a trading company or holding company of a trading group. |
| Officer or employee | You must hold that role throughout the qualifying period. |
Frequently Asked Questions
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Financial planning decisions depend on individual circumstances. If you would like clarity on how the topics discussed may apply to your situation, TrustEvo can connect you with a regulated financial adviser.
This article is provided for general information only and does not constitute financial advice. Financial decisions depend on individual circumstances and regulated financial advice may be appropriate in some situations.