Capital gains tax has a short list of reliefs, and knowing which one applies is worth far more than any planning that happens afterwards. The headline one — business asset disposal relief — now charges 18% on qualifying gains from 6 April 2026, up from 14% in 2025/26 and 10% before that. Two rate rises in two years have narrowed the gap with the main rates considerably, which changes several decisions that used to be automatic.
Business asset disposal relief
BADR reduces the rate on qualifying business disposals, subject to a lifetime limit on the gains that can benefit. The conditions must be met for at least two years before the disposal:
- For a sole trade or partnership — you carried on the business and are disposing of the whole or part of it, or of assets used in it following cessation;
- For shares — the company is a trading company or the holding company of a trading group, you hold at least 5% of the ordinary share capital and voting rights, and you are an officer or employee. The 5% test has a third limb that catches people with growth shares and alphabet structures: the holding must also give you either 5% of the profits available for distribution and 5% of the assets on a winding up, or 5% of the proceeds if the whole ordinary share capital were sold. Two exceptions sit alongside it — shares acquired under an EMI option escape the 5% test entirely, and a shareholder diluted below 5% by a commercial share issue can make an election to crystallise the gain up to that point and preserve the relief on it;
- Where the business has ceased, the assets must be disposed of within three years of cessation.
The conditions are tested throughout the two years, not at the disposal date. A shareholding diluted below 5% by a funding round where nobody made the dilution election in time, a director who resigned eighteen months before the sale, or a company that has accumulated enough surplus cash and investment property to fail the trading test — each loses the relief entirely, and each is fixable with notice and unfixable without it.
Investors' relief
Investors' relief applies the same rate to gains on newly issued, fully paid ordinary shares in unlisted trading companies, subscribed for in cash and held for at least three years. It exists for external investors: the holder must generally not be an employee or officer of the company, which is the mirror image of BADR. The lifetime limit was reduced substantially, so the relief is now materially less valuable than when it was introduced, but it remains the route for passive investors who cannot access BADR.
The deferral reliefs
Three reliefs defer rather than reduce, and the distinction matters because a deferred gain eventually arrives.
Rollover relief allows a gain on the disposal of a qualifying business asset — land, buildings, fixed plant, goodwill — to be rolled into the cost of a replacement acquired in the window running from one year before to three years after the disposal. The gain is not taxed now; it reduces the base cost of the new asset and surfaces when that is sold.
Holdover relief applies to gifts of business assets and to transfers into most trusts, treating the disposal as producing no gain and passing the donor's base cost to the recipient. It requires a joint election in most cases, and it is not available where a trust is settlor-interested.
Incorporation relief defers the gain when a sole trade or partnership transfers to a company in exchange for shares, provided the whole business and all its assets other than cash are transferred. It applies automatically unless disapplied — and disapplying it is sometimes the better answer, where crystallising a gain now at a relieved rate beats deferring it into shares taxed later.
The exemptions people forget
Private residence relief removes the gain on a main home, with the detail in our guide to principal private residence relief. Transfers between spouses and civil partners living together are on a no gain, no loss basis — the most valuable planning tool in the system, because it doubles the annual exempt amount and allows a gain to be shared across two sets of rates and reliefs. Gifts to charity are exempt. And the annual exempt amount, much reduced from its former level, still removes a slice of gains each year and is lost if unused.
What the rate changes actually alter
At 10%, BADR made selling a business dramatically cheaper than most alternatives and dominated exit planning. At 18%, the gap to the main higher rate of 24% is six points rather than fourteen — and that changes three judgements.
First, the cost of failing the conditions has fallen, which makes aggressive restructuring purely to preserve BADR harder to justify. Second, alternatives look better by comparison: a sale to an employee ownership trust, a family succession using holdover, or simply retaining and extracting profits over time. Third, timing matters less than it did, so a rushed disposal to beat a date is rarely the right answer on its own.
What has not changed is the value of checking eligibility early. Every one of these reliefs is decided by facts established two or three years before the transaction, and none of them can be created in the month before completion.
Acumon advises on relief eligibility, restructuring and the timing of disposals through capital gains tax and succession planning work, alongside sale process support — with the exit options set out in our business exit planning guide. If a sale is two years out, this is the year the conditions are decided.