Quick Answer
Business Asset Disposal Relief (BADR) is now 18% for qualifying business disposals made on or after 6 April 2026, up from 14% in 2025/26. On a £1 million qualifying gain, that is £40,000 more in CGT compared to founders who completed sales before that date.
What Is BADR and What Has Changed from 6 April 2026
Business Asset Disposal Relief (BADR) is a capital gains tax relief that reduces the CGT rate on qualifying business disposals to a flat rate below the standard higher-rate CGT charge. From 6 April 2026, that flat rate is 18%. Before that date, it was 14% for 2025/26, and 10% before 6 April 2025. The relief applies to the first £1 million of qualifying lifetime gains. Gains above that limit are taxed at the standard CGT rates, which for higher-rate taxpayers currently stand at 24% on most assets.
The official guidance is published on GOV.UK at Business Asset Disposal Relief. HMRC also publishes internal manual detail at CG64174 (HMRC Capital Gains Manual), which covers the rate history and anti-forestalling rules.
For UK agency founders thinking about a sale, these changes have a direct effect on net proceeds. A 4 percentage point increase from 14% to 18% sounds modest, but on a typical agency sale involving gains of £1 million, the difference is £40,000 in additional CGT. At £2 million of gains (where a founder has already used £1 million of their lifetime allowance from an earlier business), the standard-rate portion rises too, compounding the total tax cost. Understanding how much BADR you have left is now as important as agreeing the sale price itself.
BADR Rate from April 2026
Business Asset Disposal Relief CGT rate from 6 April 2026. Rose from 14% in 2025/26 and 10% before April 2025. The third rate change in two years.
BADR Lifetime Qualifying Gains Limit
Maximum cumulative qualifying gains on which BADR can be claimed across your lifetime. Once used up, gains are taxed at standard CGT rates.
BADR Rate 2025/26
BADR rate that applied from 6 April 2025 to 5 April 2026. Rose from 10% in April 2025 and increased again to 18% in April 2026.
Who Qualifies for Business Asset Disposal Relief
BADR on the disposal of company shares requires four conditions to be met throughout the 24 months immediately before the disposal date. First, you must hold at least 5% of the ordinary share capital and at least 5% of the voting rights. Second, you must be entitled to at least 5% of the distributable profits or 5% of net assets on a winding up, or 5% of the proceeds if all shares were sold at market value. Third, you must be a director, officer, or employee of the company throughout the two-year period. Fourth, the company must be a trading company or the holding company of a trading group, not an investment business.
For agency founders, the trading company test is usually straightforward. A marketing, design, digital, PR, or development agency providing services to clients is generally a trading business. Where agencies hold large cash reserves or investment property alongside their trading operations, HMRC can challenge the classification: assets held wholly or mainly outside the trade can reduce or remove the relief on the relevant portion of the business value. If your agency has built up substantial retained earnings or property assets, confirm your BADR eligibility with your accountant before assuming the full gain qualifies.
The 2-year holding period clock matters most for founders who have recently reorganised their share structure, converted from sole trader to limited company, or issued new share classes. Restructuring can restart the two-year clock in some circumstances. Any planned sale within 24 months of a material reorganisation needs a specific review against the BADR qualifying conditions.
How Much More CGT Will You Pay at the 18% Rate
The table below shows the CGT payable on qualifying BADR gains at each of the three rates the relief has operated at since 2025.
CGT payable on qualifying BADR gain
| Qualifying gain | 10% (pre April 2025) | 14% (2025/26) | 18% (2026/27+) |
|---|---|---|---|
| £500,000 | £50,000 | £70,000 | £90,000 |
| £750,000 | £75,000 | £105,000 | £135,000 |
| £1,000,000 (full lifetime limit) | £100,000 | £140,000 | £180,000 |
These figures represent CGT on the BADR-qualifying portion only. Gains above the £1 million lifetime limit are taxed at the standard CGT rate for higher-rate taxpayers, currently 24% on most assets.
Even at 18%, BADR still saves significant CGT compared to the standard higher-rate charge of 24%. On a full £1 million gain, BADR saves you £60,000 in CGT versus paying at the standard rate. The relief remains worth claiming for every qualifying founder. The change simply means that the savings are smaller than they were before 2025, and that net proceeds from an agency sale are lower than founders who exited earlier would have received.
The BADR Rate Timeline: Three Changes in Two Years
BADR replaced Entrepreneurs Relief in March 2020 and operated at 10% for its first five years. The 2024 Autumn Budget changed that. From 6 April 2025, the rate rose to 14%. Then, from 6 April 2026, it rose again to 18%. That is three rate changes in two years: 10% to 14% in 2025, and 14% to 18% in 2026. No equivalent relief has changed this frequently in recent UK tax history.
For agency founders, the practical implication is that the BADR calculation can no longer be treated as a fixed constant when modelling exit proceeds. A founder who began a sale process in January 2026 expecting to complete on the 14% rate faced an 18% charge if completion slipped past 6 April. Founders now starting a process need to model their CGT cost at 18% and consider whether future rate changes are possible, rather than assuming the current rate holds for the duration of an 18 to 24 month exit process. For context on how digital and advertising agency valuations are set and what drives the multiples, see our UK agency valuation and exit planning guide.
Anti-Forestalling Rules and Pre-6 April Contracts
Anti-forestalling rules prevent founders from signing contracts before a rate change simply to lock in the lower rate. For the April 2026 increase, the rules work as follows. Any disposal made under a contract entered into on or after 6 April 2026 is subject to the 18% rate. A disposal made under a pre-6 April 2026 contract may retain the 14% rate, but only if that contract qualifies as an "excluded contract" under HMRC rules.
A contract is an excluded contract if it was unconditional before 6 April 2026 and was not entered into principally to obtain a tax advantage by choosing when the disposal occurred. For transactions between connected parties, there is an additional requirement: the contract must be for wholly commercial reasons. Where total gains across all excluded contracts are £100,000 or below, no separate HMRC claim is needed. Where the gains exceed £100,000, a proactive claim must be submitted.
The practical risk for agency founders is that a contract signed before 6 April 2026 that still has outstanding conditions, such as regulatory approvals, employee retention milestones, or final warranty negotiations, may not qualify as unconditional. If the contract was not fully exchanged and unconditional before the rate change date, the 18% rate will apply regardless of when negotiations began. Before relying on the excluded contract treatment, review the position with your accountant and solicitor.
Watch out for earn-out structures
Earn-outs are common in agency deals. Whether a deferred payment qualifies for BADR depends on how it is structured. Earn-outs that look like employment income will be taxed under PAYE, not CGT, and BADR will not apply. Agree the earn-out structure with your accountant before heads of terms are signed.
What Agency Founders Selling Up Should Do Now
The rate change does not prevent agency exits. It adjusts the maths. Here is what to focus on if you are planning a sale.
Check your remaining lifetime allowance. If you have previously sold a business or shares and claimed BADR, check how much of the £1 million lifetime limit you have used. HMRC records this through your Self Assessment history. Your remaining allowance affects how much of your gain qualifies for the 18% rate versus the standard 24% rate. The Alto salary and dividend calculator can help you model how different income and gain combinations affect your total tax liability in the year of sale.
Confirm you meet the qualifying conditions now, not at completion. Check your shareholding percentage, your role as director or officer, and whether the company still meets the trading company test. If you plan to reduce your involvement before the sale, confirm with your accountant that the 24-month officer and employment test will still be satisfied at the point of disposal.
Build the revised CGT cost into the sale price negotiation. A £1 million gain at 18% leaves you with £820,000 net of CGT. The same gain at 14% would have left you with £860,000. That £40,000 difference is real money, and it affects the minimum consideration you should accept for your business. The agency valuation process should model after-tax proceeds at 18%, not the rate that applied when you first started thinking about selling.
Consider whether an Employee Ownership Trust structure is more appropriate. With BADR at 18% and rising, the EOT route, under which qualifying disposals to an employee ownership trust are fully exempt from CGT, becomes comparatively more attractive. The EOT rules changed in October 2024 but the CGT exemption remains intact. Our guide to inheritance tax and succession planning for agency owners in 2026 covers how to think about the full picture of tax on an exit, including IHT considerations if the business remains in your estate.
Review your dividend extraction strategy for 2026/27 and beyond. The optimal salary and dividend strategy for 2026/27 is relevant here: founders who extract too much as dividend in the years before a sale can inadvertently reduce the retained earnings that support business value, while those who leave too much in the company increase the cash reserves that buyers expect to adjust for in the deal price.
Frequently Asked Questions About BADR and the 2026 Rate Change
What is the current BADR rate for 2026/27?
The Business Asset Disposal Relief rate is 18% for qualifying disposals made on or after 6 April 2026. This applies to gains up to the lifetime limit of £1 million. Gains above the £1 million lifetime limit are taxed at the standard CGT rate, which is 24% for higher-rate taxpayers on most assets. The 18% rate is the third change in two years: it was 10% before 6 April 2025, rose to 14% for 2025/26, and increased again to 18% from 6 April 2026.
Who qualifies for Business Asset Disposal Relief?
To claim BADR on the sale of shares in a trading company, you must meet four conditions throughout the 24 months before disposal: you must hold at least 5% of the ordinary share capital and at least 5% of the voting rights; you must be entitled to at least 5% of the distributable profits or 5% of net assets on a winding up (or 5% of sale proceeds); you must be a director, officer, or employee of the company; and the company must be a trading company rather than an investment business. BADR also applies to the disposal of a whole or part of an unincorporated business, or assets used in such a business when it closes.
What is the BADR lifetime limit?
The lifetime limit for Business Asset Disposal Relief is £1 million of qualifying gains. This is a cumulative limit across your whole lifetime, not an annual allowance. If you previously claimed BADR on the sale of an earlier business or shares and used, say, £400,000 of the limit, you only have £600,000 remaining. Any qualifying gains above the lifetime limit are taxed at the standard CGT rate for higher-rate taxpayers, currently 24% on most assets. HMRC tracks your cumulative usage through your Self Assessment returns.
Has the BADR rate always been 18%?
No. The rate has changed three times in two years. It was 10% from the time it replaced Entrepreneurs Relief in 2020 until 5 April 2025. It rose to 14% from 6 April 2025, then increased again to 18% from 6 April 2026. Before the 2024 Autumn Budget, many founders expected the rate to remain at 10% long-term. The successive increases have changed how agency founders approach exit timing.
Do I still save tax using BADR at 18%?
Yes. Even at 18%, BADR still saves you CGT compared to the standard higher-rate CGT rate. On most assets, higher-rate taxpayers pay 24% CGT. BADR reduces that to 18% on the first £1 million of qualifying gains, saving you up to £60,000 on a full £1 million gain (6% x £1 million). The saving is smaller than when the rate was 10% (when it saved up to £140,000 on a £1 million gain), but it remains worth claiming where you qualify.
What are the anti-forestalling rules for BADR?
Anti-forestalling rules prevent founders from back-dating contracts simply to lock in a lower BADR rate. If you disposed of qualifying assets under a contract entered into on or after 6 April 2026, the 18% rate applies automatically. If your contract was entered into before 6 April 2026 but completion happens after that date, HMRC will normally apply the 18% rate unless the contract qualifies as an "excluded contract." An excluded contract must be unconditional, must not have been entered into principally to obtain a tax advantage through timing, and, for connected party transactions, must be wholly commercial. Where total gains on all excluded contracts are £100,000 or less, no separate claim is required; above £100,000, a proactive claim must be made.
How and when do I claim BADR?
You claim BADR through your Self Assessment tax return for the year in which the disposal took place. The claim deadline is the first anniversary of 31 January following the end of the relevant tax year. For a disposal in 2026/27 (before 5 April 2027), the deadline is 31 January 2029. You must make the claim in writing, either on the SA108 Capital Gains pages or by separate letter to HMRC. BADR is not applied automatically: if you forget to claim, HMRC will tax the gain at the standard rate and you may need to amend your return before the deadline.
Does BADR apply to earn-outs when selling my agency?
Earn-out payments are common in agency acquisitions and their BADR treatment depends on how they are structured. If the earn-out qualifies as a capital payment rather than employment income and relates to the original disposal of shares, it may be eligible for BADR. However, earn-outs can be complex: deferred consideration structured as employment income is taxed under PAYE, not CGT, and BADR would not apply. The structure of the earn-out should be agreed with your accountant before heads of terms are signed, as the form of the consideration can significantly affect your net proceeds.
How Alto Can Help
If you are thinking about selling your agency and want to understand your BADR position, remaining lifetime allowance, and how the 18% rate affects your net proceeds, our chartered accountants work with agency founders at every stage of the exit process. We can model your after-tax proceeds under different deal structures, confirm your BADR qualifying conditions, and coordinate with your solicitor on the tax treatment of earn-outs and deferred consideration.
Book a free consultation to talk through your exit planning.