Business Asset Disposal Relief (Entrepreneurs' Relief)

Business Asset Disposal Relief (formerly known as Entrepreneurs' Relief) allows you to pay a lower rate of Capital Gains Tax when you sell all or part of your business, or certain business assets. Instead of paying CGT at the standard rates of 18% or 24%, qualifying disposals are taxed at just 10%, subject to a lifetime limit of £1 million in qualifying gains.

What is Business Asset Disposal Relief?

Business Asset Disposal Relief is a Capital Gains Tax relief that reduces the tax you pay when disposing of qualifying business assets. When you sell something that triggers a capital gain (the profit you make after deducting costs), you normally pay CGT at either 18% or 24% depending on your income tax band and the type of asset.

With Business Asset Disposal Relief, qualifying gains are taxed at 10% instead. This can result in significant tax savings when you sell your business or business interests.

Lifetime limit

You can claim Business Asset Disposal Relief on a maximum of £1 million of qualifying gains over your lifetime. This is a cumulative limit that applies to all claims you make throughout your life, not a limit per disposal or per tax year.

Once you've used your £1 million lifetime allowance, any further qualifying disposals will be taxed at the standard CGT rates.

Who qualifies for the relief?

Business Asset Disposal Relief is available to:

Sole traders and business partners who are disposing of all or part of their business

Company directors and employees who own shares in their trading company and are selling those shares

The specific qualifying conditions depend on which type of disposal you're making.

Qualifying disposals for sole traders and partners

If you're a sole trader or business partner, you can claim Business Asset Disposal Relief when you sell:

• The whole or part of your business
• Individual assets after your business has ceased, provided the sale happens within three years of cessation

To qualify, you must have owned the business (or been a partner in the partnership) for at least two years before the date of disposal.

Qualifying disposals for company shareholders

If you own shares in a company, you can claim Business Asset Disposal Relief when you sell your shares, provided you meet all of these conditions:

• You own at least 5% of the ordinary share capital in the company
• Your shares give you at least 5% of the voting rights
• You're entitled to at least 5% of the company's distributable profits
• You're entitled to at least 5% of the company's assets available for distribution in a winding up
• The company is a trading company or the holding company of a trading group
• You're an employee or officer (such as a director) of the company

You must have held your shares and been an employee or officer of the company for at least two years before the date of disposal.

What counts as a trading company?

For the relief to apply, your company must be a trading company. This means it must carry out commercial trading activities with a view to making a profit.

Companies that mainly hold investments or property for rental (investment companies) do not qualify, unless the property rental is part of a broader trading activity such as a hotel or furnished holiday lettings business.

Associated disposals

In some circumstances, you can claim Business Asset Disposal Relief on personal assets you dispose of at the same time as you dispose of your business or shares. This is called an "associated disposal."

For example, if you own a business property personally (rather than through your company) and you dispose of it at the same time as selling your shares in the company, that disposal may qualify for the relief.

Specific conditions apply to associated disposals, including requirements about how the asset was used by the business.

Disposals of trust assets

If you're a beneficiary of a trust, you may be able to claim Business Asset Disposal Relief when the trustees dispose of business assets, or when you receive business assets from the trust. The qualifying conditions are complex and depend on the nature of the trust and your interest in it.

How to claim the relief

You claim Business Asset Disposal Relief through your Self Assessment tax return. You must claim the relief by the first anniversary of 31 January following the tax year in which you made the disposal.

For example, if you sold your business in the 2025/26 tax year (which runs from 6 April 2025 to 5 April 2026), you would need to submit your Self Assessment return and claim the relief by 31 January 2028.

On your tax return, you'll need to complete the Capital Gains Tax summary pages and indicate that you're claiming Business Asset Disposal Relief. You'll need to specify the amount of the gain that qualifies for the relief.

Calculating your gain

Before applying Business Asset Disposal Relief, you need to calculate your capital gain in the usual way. This means:

1. Working out the disposal proceeds (what you sold the asset for)

2. Deducting the allowable costs (what you originally paid for it, plus any enhancement costs and selling costs)

3. Applying any other relevant reliefs (such as Gift Hold-Over Relief)

Once you've calculated your gain, Business Asset Disposal Relief reduces the rate of CGT you pay on that gain from 18% or 24% to 10%.

Remember that you still have your annual Capital Gains Tax allowance (called the Annual Exempt Amount), which you can use against your gains before calculating the tax due.

Record keeping

You must keep records to support your claim for Business Asset Disposal Relief. This includes:

• Evidence that you owned the business or shares for at least two years
• Evidence of your shareholding percentage (if claiming as a shareholder)
• Proof of your employment or directorship (if claiming as a shareholder)
• Documentation showing the disposal proceeds and costs
• Records showing how you calculated your capital gain

Sources

• Business Asset Disposal Relief (Self Assessment helpsheet HS275)

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.