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Business Asset Disposal Relief – How Much Tax Is Due On The Sale Of A Business?Written on August 13, 2026 by Kirk Rice LLP

Key Points

• Business Asset Disposal Relief (BADR) may reduce the capital gains tax rate on a qualifying business sale, but the rules differ for sole traders, partnerships and company shareholders.
• Qualifying disposals are taxed at 18%.
• Eligibility depends on factors such as ownership period, business structure and the specific assets being sold, including goodwill.
• Company shareholders must meet conditions around employment, shareholding and the company’s trading status for BADR to apply.
• Asset sales, partial withdrawals and “associated disposals” can create more complex tax outcomes, and relief may be restricted where the asset was not fully used for business purposes.

Whether you started your business from scratch or bought it from someone else, when it comes to selling the business on, it is important to understand the tax liabilities that can arise. Business Asset Disposal relief may apply to your business.

Business Asset Disposal Relief is a capital gains tax relief that applies when an individual sells all or part of a trading business. If the conditions are met, the qualifying gain is taxed at a reduced rate. The relief is intended to support business owners who have spent time building and running their business.

The tax position can be different depending on whether your business is operated as a sole trader/partnership or as a Limited company. It is also important to ascertain what is being sold, as each element may be taxed differently. For example, trading premises, fixtures and fittings, trading stock and goodwill.

Sole Trader businesses

Generally, the major part of the sale proceeds is in respect of the sale of the goodwill. The sale of goodwill is subject to CGT and potentially Business Asset Disposal relief is available so that the effective tax rate is 18%. To qualify for the relief, the individual must have owned the business for at least two years and relief will be available only in respect of relevant business assets. Relevant business assets are all the assets used in the business except those that are held as investments, and any shares or securities, whether or not they are held as investments.

It should be noted that Business Asset Disposal Relief is not available on the disposal of goodwill where the individual transfers an unincorporated business to a close company in which that individual has a 5% interest.

Limited Company

The sale of shares in a company can also qualify for Business Asset Disposal relief for the shareholder although there are conditions. The conditions are;

• The individual must be an officer or employee of the company
• The individual holds at least 5% of the shares and voting rights plus either (i) be entitled to 5% of the company’s distributable profits and assets on a winding up or (ii) be entitled to 5% of the proceeds on a sale of the company.
• The company must be a ‘trading’ company
• The above conditions must have been met for at least two years prior to the date of disposal

Sometimes the buyer does not want to buy the shares from the seller but rather buy the assets and goodwill from the company. This does complicate the tax position for the seller and can create a double tax charge; once, when the company sells the goodwill and a further charge for the owner when he takes the money out of the company. The amount of tax can be mitigated in this circumstance with careful planning.

Associated disposals

Where there has been a disposal of shares, or a disposal of a partnership interest, and the individual has withdrawn from participating in the business, an associated disposal by the individual of an asset that was used by the business can qualify for Business Asset Disposal relief.

The withdrawal from the business need not be a complete withdrawal: a partner may reduce or a shareholder may retain some shares (but, in the case of a partnership, the partner who is making the associated disposal must dispose of an interest of at least 5% in the partnership, and in the case of shares, the disposal must be of at least 5% of the ordinary share capital, carrying at least 5% of the voting rights). The asset that is disposed of must have been owned for at least three years.

The amount of gain arising on the associated disposal that can be taken into account for Business Asset Disposal relief is restricted when any of the following apply:

• The asset has only been used by the business for part of the period of ownership by the individual (in which case, the gain taken into account will reflect the period of business use).
• Only part of the asset has been used for the purposes of the business (so the gain taken into account will reflect the proportion of the asset used for business purposes).
• The individual concerned has only been involved in the business as a partner of the partnership or as an employee or officer of the company for part of the time during which the asset was used by the business.
• Any payment of rent was made for the use of the asset by the personal company or partnership.

Business Asset Disposal relief must be claimed.

The claim must be made by the first anniversary of 31 January following the end of the tax year in which the gain arose and may be withdrawn within the same period, although it will normally be made on the tax return for the tax year in which the disposal arose.

If you’d like to get in touch, please email us at info@kirkrice.co.uk 

Please note: answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made. The information is based on current tax legislation which may change in future. The FCA does not regulate tax and trust advice.

Please note: answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made. The information is based on current tax legislation which may change in future. The FCA does not regulate tax and trust advice.