Business Asset Disposal Relief (BADR) is a UK tax relief that reduces the capital gains tax you pay when you sell or dispose of your business, applying a lower rate of 14% on qualifying gains up to a lifetime limit of £1 million.
For agency founders, BADR is the most valuable tax relief available when exiting your agency. It applies when you sell shares in your personal service company (your agency) or sell the agency's assets as a sole trader. To qualify, you must have owned the agency and been an employee or officer for at least two years before the sale. The relief reduces the capital gains tax rate from the standard 20% (for higher-rate taxpayers) to just 14% in the 2025/26 tax year, saving you 6p for every £1 of profit above your annual exempt amount.
However, the rules are tightening. From 6 April 2026, the BADR rate rises to 18%, so if you are planning an exit, the 2025/26 tax year offers the lowest rate. The lifetime limit of £1 million of qualifying gains has been fixed since March 2020 and is not indexed for inflation, meaning a £1 million gain in 2025 buys far less real value than it did five years ago.
To claim BADR, you must ensure your agency shares meet the "personal company" conditions: you must hold at least 5% of the ordinary share capital and voting rights, and be entitled to at least 5% of the distributable profits and assets on a winding up. Many agency founders trip up by holding shares through a separate holding company or by having non-voting shares that fail the 5% test. You should also watch the "significant commercial interdependence" rule if you run multiple agencies through separate companies.
BADR applies to disposals of the whole business, not partial sales of shares over time. If you sell your agency in stages, only the final disposal that transfers control qualifies. You can also claim BADR on goodwill and certain business assets if you sell as a sole trader, but note that goodwill disposals to a company you control are specifically excluded.
When this matters for agency founders: If you are planning to sell your agency, BADR is your single biggest tax-saving tool, potentially saving tens of thousands of pounds compared to paying full capital gains tax. With the rate rising to 18% in April 2026, now is the time to structure your exit to qualify.