If you have been building a business with one eye on the eventual exit, you have almost certainly come across entrepreneurs relief at some point. The relief promised a reduced capital gains tax rate when you sold your business — and for a long time, 10% felt like a meaningful reward for the years of risk you had taken on.

The relief still exists, but it no longer goes by that name and the rates have moved sharply. Since April 2020 it has been called Business Asset Disposal Relief (BADR), and as of 6 April 2026 the CGT rate under the relief has risen to 18% — up from 14% in the previous tax year and the original 10% that most people have in mind when they think about entrepreneurs relief.

None of that means the relief is worthless. On gains up to the £1 million lifetime limit, 18% is still considerably better than the standard CGT rates. But it does mean the planning conversation has become more urgent, and the eligibility criteria more important to get right before you proceed.

The relief applies a reduced CGT rate to qualifying gains when you dispose of a business or shares in a trading company. The lifetime limit is £1 million of gains — meaning the maximum total tax saving compared to standard CGT rates is meaningful, but not unlimited.

Three main scenarios qualify:

• Sole traders and business partners selling their business or a share of it
• Company shareholders selling shares in a trading company where they are also an employee or officer
• Trustees disposing of business assets in certain circumstances

What does not qualify tends to catch people out. Investment companies, property holding companies, and businesses where trading has effectively stopped do not meet the definition of a qualifying trading company. If your company earns income primarily from investments or property rather than active trade, the relief is unlikely to apply — and simply calling it a trading company on the paperwork does not change that.

For shareholders with non-EMI shares, there is a further requirement: you must hold at least 5% of the ordinary shares and voting rights for at least two years before the disposal. A smaller holding — say a 3% stake in a management buyout — would not qualify, regardless of how long you have held it.

The two-year ownership requirement sounds straightforward. In practice, it generates a significant number of failed claims.

For sole traders and partnerships, you must have owned and operated the business as a going concern for at least two years up to the date of sale. Selling the assets of a business that has been dormant for a year before completion can create problems here.

For company shareholders, the two-year clock runs from the date you became an employee or director — not the date you first acquired shares. If you received founder shares immediately at incorporation but did not formally become an employee or take a director role until six months later, your qualifying period starts at that later date. We see this confusion regularly among early-stage founders who assumed their original shareholding date was what mattered.

There is a limited window if your company stops trading before you sell your shares: you have up to three years from the date trading ceased to dispose of the shares and still potentially claim relief. However, all other conditions must still be met at the point the company stopped trading, so this is not a back-door route for companies that never quite qualified in the first place.

The broader point is that qualification is not something to assess on the day you agree a deal. The conditions need to be in place well in advance — ideally reviewed annually as part of your tax planning, not scrambled for in the weeks before completion.

For most of the relief’s life, the rate was 10%. That changed significantly in October 2024 and then again in April 2026.

• On or before 5 April 2025: 10%
• 6 April 2025 to 5 April 2026: 14%
• From 6 April 2026 onwards: 18%

For a business owner realising a £500,000 gain, the difference between the 10% rate and today’s 18% rate is £40,000 in additional tax. That is not trivial.

This is relevant for anyone who has been deferring a sale or exit. The rate has now stepped up twice in quick succession, and there is no certainty it will not move again. The relief is politically contentious — it has been described as one of the more expensive tax breaks in the UK system, costing the exchequer around £1.5 billion annually — and it has faced sustained criticism that it does not materially encourage entrepreneurship in the way it was intended to.

We are not in the business of predicting what future governments will do. But we would say: if you are planning an exit in the next two to three years, the time to review your eligibility and structure that exit properly is now, not when heads of terms have been signed.

One development worth being aware of: HMRC has been sending nudge letters to taxpayers who may have overclaimed Business Asset Disposal Relief on their self-assessment returns. These are not formal enquiries at the point of receipt, but they are a signal that HMRC’s compliance teams are reviewing claims and cross-referencing them against company data, shareholding records, and employment histories.

The most common issues flagged involve the length of the qualifying shareholding period and whether the assets disposed of genuinely met the definition of business assets rather than investment assets. Both are areas where the facts need to be clearly documented — not reconstructed from memory after the event.

If you have already submitted a return claiming the relief and you receive one of these letters, the right response is to review the original claim carefully with your accountant before deciding whether to amend the return or respond with supporting evidence. Acting promptly matters; ignoring nudge letters rarely ends well.

The practical lesson is that the quality of the claim matters as much as the eligibility itself. Records showing your shareholding percentage, employment start date, and the trading nature of the company should be kept and maintained throughout — not assembled in a hurry when a buyer appears.