Maximising BADR on shares & planning for a tax-efficient exit

For many owner-managed business leaders, exiting their company can be one of the most important financial events of their lives. It is crucial to understand the tax implications of an exit well in advance, and the availability of Business Asset Disposal Relief (BADR) remains a key factor for consideration.  

What is BADR on a share disposal?

On a qualifying disposal of company shares post-6 April 2026, an individual can claim BADR which treats the Capital Gains Tax (CGT) rate payable on a chargeable gain as a fixed 18% (compared to the individual paying potentially 24% on the whole gain).

To qualify, individuals must generally:

• Own shares in a ‘trading company’
• Own at least 5% of the company shares and voting rights
• Be an employee or officer of the company
• Have met the above criteria for at least 2 years prior to the chargeable disposal

Individuals are also subject to a £1 million BADR lifetime limit on qualifying gains.

Why early planning is crucial

One common mistake we see is that business owners do not consider whether they are eligible to claim BADR until they are about to exit their business.

Due to the 2-year ownership condition, there may be no time to implement any changes (for example, changes to the company's share structure would need to be put in place well in advance of a sale). 

Sole owner companies

Individuals who own 100% of their companies may face issues if the value of their business exceeds the £1 million lifetime limit, but can only make a claim for £1 million on a sale of their business. This can lead to unnecessary additional tax costs where a planning opportunity may have been available. 

Should you consider transferring shares to family members?

Family members owning shares in trading companies can be a useful planning opportunity to try and maximise BADR on an exit from the business. 

There are tax implications to gifting shares to family that need to be considered, but reorganising the company share ownership could lead to a more efficient ownership structure and better utilisation of available reliefs.

Each shareholder must independently qualify for BADR, so careful planning must be considered before any share gifts are carried out. 

Non-trading companies/activities

It can be quite easy for shares in companies to not qualify for BADR if the business does not meet the ‘trading’ status.

A company may have a trading activity, but this doesn’t automatically mean that the condition will apply. If there are any ‘significant’ non-trading assets or activities in the business, then these could jeopardise the condition and mean that BADR would not be available to claim.

This is particularly important where the company in question undertakes investment activities (e.g. property letting) as well as trading activities.

It is important to consistently review company assets and activities to ensure there is nothing that would jeopardise the ‘trading’ condition for BADR. 

BADR and exit strategy planning

BADR should be considered as part of a wider exit strategy, not just on its own. There are various routes to exit, including:

• Third-party sale
• Management buy-out (MBO)
• Family buy-out
• Company purchase of own shares

Each route may allow shareholders to:

• Extract value at lower CGT rates compared to income tax rates
• Potentially access BADR

In some cases, selling shares and claiming BADR can be more tax-efficient than continuing to extract profits as income is taxed at higher rates. 

Important points for consideration

For owner-managed businesses (especially sole shareholder companies), it is important to:

• Start planning early.
• Review your shareholding structure regularly.
• Consider whether you should gift shares to your family members.
• Ensure BADR conditions are met well in advance.

BADR is no longer as generous as it used to be (the lifetime limit used to be £10 million and now it is only £1 million). However, if used correctly, it is a valuable relief that can save individuals significant amounts of CGT. 

How we can help

Our Tax Planning team at Shorts are happy to assist with:

• Reviewing your eligibility for BADR
• Advising on whether there is a benefit to considering a change in the company share structure
• Helping you prepare for a future exit

We are happy to have an initial conversation and can tailor a solution to suit your needs.

In other cases, BADR can also be available on exits from sole trades and partnerships. We can assist you in checking whether BADR would be available for you in these cases, so please reach out to us.