BADR lifetime limit halved to £500,000 from April 2027

Budget 2026 halves the lifetime limit for Business Asset Disposal Relief (BADR). From 6 April 2027, only the first £500,000 of qualifying gains in a person’s lifetime will be taxed at the BADR rate of 18%, down from £1 million. Owners planning to sell a trading company or business, or to wind one up, in the next two years now have a clear date to plan around.

What was announced

The Treasury will legislate in Finance Bill 2026-27 to reduce the BADR lifetime limit from £1,000,000 to £500,000 for qualifying disposals made on or after 6 April 2027. The relief itself, its qualifying conditions and its 18% rate are not changed by the Budget.

The overview of tax legislation says there will be special provisions for contracts entered into before 6 April 2027 that have not been completed by then, and for certain share reorganisations and exchanges of securities that are not completed before that date. The detail will be in the Finance Bill, and it will matter for any client hoping to rely on exchanging contracts before the deadline.

Why the government is doing it

The Treasury’s response to its call for evidence on tax support for entrepreneurs says BADR “provides a tax benefit when selling or liquidating a business” but “does not help business owners establish or grow their business”. Respondents told the government that BADR influenced the timing of a sale more than the decision to start or sell a business. The government’s answer is to target BADR at smaller gains and to put the bigger reward into the new Founders’ Relief, which gives a 10% rate on up to £10 million of gains for founders of qualifying high-growth companies.

The Budget document says the change means three-quarters of BADR claimants will still get relief on their entire gain. The policy costings expect it to raise £180 million in 2028-29, rising to £305 million by 2031-32, and allow for some people bringing sales forward to beat the deadline.

Worked example

A higher rate taxpayer sells qualifying shares in their trading company for a gain of £800,000. They have never claimed BADR before. The example ignores the £3,000 annual exempt amount.

The cost of missing the deadline is £18,000, which is the £300,000 above the new limit multiplied by the 6 point gap between 24% and 18%. For a seller with a £1 million gain the extra tax is £30,000.

The limit is a lifetime one, so earlier claims count. A client who has already claimed £500,000 or more of BADR or its predecessor, Entrepreneurs’ Relief, will have no BADR left for disposals from 6 April 2027.

What it means for accountants and their clients

Identify clients with exits in view. The people most affected are owners with gains between £500,000 and £1 million, and those above £1 million, who now lose relief on a further £500,000. Review client lists for planned sales, management buyouts, retirements and members’ voluntary liquidations in the next 18 months.

Timing is now worth real money, but should not drive a bad deal. Completing before 6 April 2027 can save up to £30,000 per person. That is a reason to keep a sale timetable on track, not a reason to accept a weaker price or rushed terms. Watch for the anti-forestalling detail on contracts exchanged before the deadline.

Check each shareholder’s history. Spouses and civil partners each have their own lifetime limit, but only where each meets the BADR conditions in their own right. Confirm past claims, including Entrepreneurs’ Relief claims, before quoting a figure.

Liquidations need the same planning. Where BADR is expected on a members’ voluntary liquidation, the timing of distributions against the 6 April 2027 date should be planned with the insolvency practitioner. The separate company distributions reform from April 2028 is also relevant to exits and share buybacks.

Consider Founders’ Relief for the right companies. A small number of high-growth companies will qualify for the new 10% relief from 6 April 2027. Any BADR or Investors’ Relief claimed from that date reduces the £10 million Founders’ Relief limit, so the order of claims needs thought.

Our existing guide to Business Asset Disposal Relief explains the qualifying conditions, and the capital gains tax calculator helps with the arithmetic.

Frequently asked questions

When does the BADR lifetime limit fall to £500,000?

For qualifying disposals made on or after 6 April 2027. Disposals before that date use the current £1 million limit, subject to the special rules for contracts entered into before 6 April 2027 that complete afterwards.

Is the BADR rate changing?

No. The BADR rate is 18% in both 2026-27 and 2027-28. Only the lifetime limit changes.

Do earlier claims count towards the new £500,000 limit?

Yes. It is a lifetime limit, so BADR and Entrepreneurs’ Relief already claimed are counted. Someone who has already used £500,000 or more will have no relief left for disposals from 6 April 2027.

Does the change affect Investors’ Relief?

The Investors’ Relief lifetime limit stays at £1 million. Claims to either relief from 6 April 2027 reduce the £10 million lifetime limit for the new Founders’ Relief.