As announced in Budget 2026, the government will introduce legislation in Finance Bill 2026/27 to reduce the lifetime limit to which Business Asset Disposal Relief (BADR) applies from £1m to £500,000.

The new limit will apply to qualifying disposals made on or after 6 April 2027. This means that business owners who have already used some or all of their lifetime limit may have less scope to benefit from the relief on future disposals.

Business Asset Disposal Relief (BADR) provides a reduced rate of Capital Gains Tax (CGT) on qualifying disposals of business assets. It is intended to encourage business owners to build and develop businesses by reducing the CGT payable when they dispose of qualifying business interests.

BADR may be available to individuals disposing of all or part of a business, certain shares in a personal trading company, or qualifying assets associated with a business disposal. The eligibility conditions depend on the type of disposal. For example, a shareholder disposing of shares will generally need to be an employee or office holder of the company and satisfy the relevant personal company and trading conditions for the required period. A minimum shareholding is also required under the share disposal rules.

The relief is subject to a lifetime limit on the total gains qualifying for relief. The current lifetime limit is £1m, with qualifying gains subject to a CGT rate of 18% from 6 April 2026.

Special provisions will apply to certain contracts entered into before 6 April 2027 that have not been completed by that date, as well as to certain share reorganisations and exchanges of securities that remain incomplete. Business owners considering a disposal close to the implementation date should review the transitional provisions carefully, as the timing and structure of a transaction may affect the amount of relief available.

The reduction will limit the amount of gains that can benefit from BADR, although qualifying gains within the available lifetime limit will continue to benefit from the applicable reduced rate. Business owners planning to sell their business or shares should review their previous BADR claims and consider the potential impact of the reduced limit when planning future disposals.