Guide
The BADR two-year rule and the 5% test
Updated
The relief is worth up to £60,000 on a £1,000,000 gain against the 24% rate. It is also the easiest thing to lose by restructuring in the wrong month.
Talk to a specialist Sale price, relief, Capital Gains Tax and what reaches your account, whether you complete by 5 April 2027 or after.
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How this calculator works
- Business Asset Disposal Relief charges 18% on all gains on qualifying assets disposed of from 6 April 2026. It was 14% between 6 April 2025 and 5 April 2026, and 10% on or before 5 April 2025.
- If your completion date falls in an earlier window, the older rate applies (gov.uk: Business Asset Disposal Relief, and HMRC rates and allowances, updated 13 April 2026).
- The relief is capped across your lifetime, not per disposal: £1,000,000 of gains for a disposal before 6 April 2027. That limit has applied to qualifying disposals on or after 11 March 2020 (gov.uk, HMRC Capital Gains Manual CG64125).
- Budget 2026 cuts it to £500,000 for qualifying disposals made on or after 6 April 2027, at the same 18% rate. Source: HMRC tax information and impact note, 29 October 2026.
- The cut is in the Finance Bill 2026: until Royal Assent it is announced policy, not law. Enter what you have already used.
- Gains above the relief are taxed here at 24%, the higher or additional rate taxpayer's rate. Budget 2026's rates table shows 18% and 24%, and the £3,000 annual exempt amount, unchanged for 2027 to 2028 (Budget 2026, Annex A: rates and allowances).
- A basic rate taxpayer pays 18% on the part of the gain inside their unused basic rate band. So this calculator overstates the tax for someone with little other income (gov.uk: work out your tax).
- The annual exempt amount is £3,000 for 2026/27, unchanged from 2025/26 and 2024/25. As HMRC directs, it is applied to the gains charged at the highest rate first. So it comes off the 24% slice before the 18% slice (HMRC rates and allowances).
- Qualifying for the relief on a share sale broadly requires three things, for at least two years to the date of disposal. You were an officer or employee of the company. It was a trading company or the holding company of a trading group.
- And you held at least 5% of the ordinary shares and voting rights. You were entitled to at least 5% of distributable profits and assets on winding up, or of the proceeds on a sale (gov.uk eligibility, HMRC CG63975, TCGA92/S169I).
- Sole traders and partners qualify on a different two-year test. The toggle takes your word for it; HMRC will not.
- Fees are treated as incidental costs of disposal: they reduce the chargeable gain and the cash you keep. Base cost is what you paid for the shares, which for founders' shares subscribed at par is usually negligible.
- Founders' Relief is computed on the consultation draft, which closes at 11:59pm on 30 November 2026 (HM Treasury technical consultation). The draft charges 10% on qualifying share disposals from 6 April 2027, up to a lifetime limit of £10 million (HMRC tax information and impact note).
- Any Business Asset Disposal Relief or Investors' Relief claimed from 6 April 2027 reduces that limit (Annex A). This calculator assumes none has been claimed, taxes any gain above £10 million at 24%, and applies the relief only when you answer Yes. The conditions can change before the Finance Bill 2026/27 is passed.
- An Employee Ownership Trust sale: from 26 November 2025, 50% of the gain on a qualifying disposal to the trustees is chargeable. The other 50% is held over to the trust. Business Asset Disposal Relief and Investors' Relief are not available on it (HMRC tax information and impact note, helpsheet HS277).
- The chargeable half is taxed here at 24% after the annual exempt amount. The Founders' Relief consultation draft does not say whether that relief can apply to a sale to a trust, so this calculator never applies it there.
- Which date counts. Under a contract the disposal happens when the contract is made, not when the shares are transferred. Under a conditional contract it happens when the condition is satisfied (Taxation of Chargeable Gains Act 1992, section 28).
- Budget 2026 adds anti-forestalling rules for unconditional contracts entered into before 6 April 2027 and completed on or after it. The £500,000 limit applies unless the parties show they did not contract for the timing rule's tax advantage.
- Connected parties must show the contract was wholly commercial. A statement is needed where the gain exceeds £100,000 (HMRC). The calculator's completion date stands for the date of disposal under those rules.
- Not modelled, and each can move the answer materially: earn-outs and deferred consideration, share-for-share exchanges and loan notes, EMI and other option exercises, and capital losses brought forward.
- Nor are Investors' Relief, disposals by trustees or personal representatives, multiple shareholders with different holdings, or anyone not resident in the UK for tax. Take advice before relying on a figure from any calculator, including this one.
What has to be true, and for how long
For a sale of shares, gov.uk sets out two conditions that must both apply for at least two years up to the date you sell. You are an employee or office holder of the company (or one in the same group).
And the company's main activities are trading rather than non-trading activities like investment, or it is the holding company of a trading group (gov.uk).
Where the shares are not from an Enterprise Management Incentive, the company must also have been your personal company for those two years. You hold at least 5% of both the shares and the voting rights.
And you are entitled to at least 5% of either the profits available for distribution and assets on winding up, or the disposal proceeds if the company is sold. HMRC's Capital Gains Manual works through the statutory conditions at CG63975 (TCGA92/S169I).
Sole traders and partners
The test is different. You must have been a sole trader or business partner and owned the business for at least two years up to the date you sell. The same conditions apply if you are closing the business instead. Disposing of assets after the business has ceased, gov.uk requires the disposal within three years of cessation.
The traps worth knowing before you restructure
- Resigning early. Stepping down as a director or employee before completion can break the two-year officer or employee condition.
- Dilution below 5%. A new share issue can push you under the personal company threshold. There is an election that lets you crystallise and bank the relief at that point, but it has to be made.
- Too much cash on the balance sheet. Substantial non-trading activity can put the trading company test in doubt. The test is about the company's activities, not just its trade description.
- Alphabet shares and rights. The 5% test looks at shares, votes and economic entitlement together, so a share class without votes or without a proportionate right to proceeds can fail it.
- The lifetime limit is per person. Spreading ownership across family members who genuinely meet the tests is a planning point; retrofitting it in the weeks before a sale is not.
These are the headline conditions, not the full statute. HMRC's manual runs to dozens of pages, and every one of the traps above turns on facts a calculator cannot see. Confirm your position with a tax adviser before you sign.