Business Asset Disposal Relief for managers

Business Asset Disposal Relief (BADR — the successor to Entrepreneurs' Relief) reduces the capital gains tax rate on qualifying share sales. For a manager selling equity at an exit, qualifying or not qualifying is one of the larger single swings in the after-tax outcome — so the conditions deserve more attention than they usually get.

What it does

For the 2026/27 tax year, BADR taxes qualifying gains at 18%, against a main higher CGT rate of 24% — a six-point saving on every qualifying pound. (The BADR rate has stepped up at recent Budgets — it was 10% as recently as early 2025 — which is a standing reminder to check current rates rather than folklore.) The relief is capped by a £1 million lifetime allowance of qualifying gains per person: use it across one exit or several, but once it's used, it's gone.

The standard conditions

For ordinary share sales, throughout the two years before disposal you generally need to be:

• an employee or office-holder of the company (or group), and
• holding at least 5% of the ordinary share capital and voting rights, with an entitlement to at least 5% of proceeds or of profits-plus-assets.

That 5% test is where management equity often stumbles: sweet-equity percentages sit below it, dilution pushes people under it mid-hold, and complex share classes can pass the share-count test while failing the economic one.

The EMI route — no 5% needed

Shares acquired by exercising EMI options have their own, kinder track: the 5% requirement doesn't apply, and the two-year clock generally runs from the grant of the option rather than from exercise. For many managers this makes EMI the only realistic path to BADR — and one more reason scheme status (and avoiding disqualifying events) is worth guarding.

Practicalities worth knowing

• BADR is claimed, not automatic — through self-assessment, by the deadline following the tax year of disposal.
• Spouse transfers, dilution protections and timing around option exercises all interact with the conditions; where the numbers are large the planning conversation belongs with a qualified tax adviser well before a sale process starts.
• The relief applies per person — in owner-manager couples where both genuinely qualify, each has a lifetime allowance.

FAQ

Does BADR apply to growth shares or sweet equity?

It can, if the standard conditions are met — the common obstacle is the 5% economic test, which many management stakes don't reach. Whether yours does is a fact question about your share class and percentage, answerable from the cap table and articles.

I'll hold 5% only after my options exercise at exit — do I qualify?

Under the standard route, generally not — the conditions look at the two years before disposal, not the position on completion day. The EMI route is different, which is precisely its value: grant-date clock, no 5% test.

Where do I check the current rate and limit?

Gov.uk publishes both. Rates and allowances have moved more than once recently, so for anything decision-sized, verify against the current year's figures — and treat this guide's numbers as correct only for the tax year stamped at the top.