The significant changes come into effect today (6th April 2026) for both Business Asset Disposal Relief (BADR) and Investors’ Relief (IR), impacting tax planning for business sales and investments. The changes have been known since the Autumn 2024 Budget but these further increases have now come into force for this new tax year.
Here are the key BADR & IR changes for April 2026
- Aligned rate increases: The Capital Gains Tax (CGT) rate applied to qualifying disposals under both BADR and IR will increase to 18%. This is the final step in a phased increase, moving up from the interim 14% rate applicable throughout the 2025/26 tax year.
- Matched (but separate) lifetime limits: Both reliefs will operate under a strict £1 million lifetime allowance per individual. For BADR, this limit remains unchanged. For IR, this cements the drastic reduction from the previous £10 million limit (which was cut with immediate effect back in late 2024). It is important to note that these are separate allowances; an individual could theoretically utilise their full £1 million BADR limit on their own company and a separate £1 million IR limit on external investments.
- Distinct eligibility rules remain: While the tax treatment is now identical, the target audiences are different:
- BADR is for active business owners: You must be an officer or employee of the trading company and have held at least 5% of the shares and voting rights for a minimum of two years.
- IR is for external investors: You generally cannot be an employee or paid director of the company, and you must have subscribed for newly issued shares wholly in cash, holding them continuously for at least three years.
- The squeeze on the tax advantage: Because the main lower rate of CGT also sits at 18%, the primary benefit of claiming BADR or IR from April 2026 will no longer be a blanket discount for all sellers. Instead, these reliefs will serve almost exclusively to protect higher and additional-rate taxpayers from being hit by the standard 24% upper CGT rate.
- Strict anti-forestalling rules: HMRC has implemented robust anti-forestalling provisions across both reliefs to prevent taxpayers from artificially locking in the older, lower rates. Simply signing an unconditional contract or triggering a share reorganisation before 6 April 2026 will not guarantee the 14% rate if the actual completion or election happens after that date, unless strict commercial, non-tax-driven criteria are proven.
So what does this mean for disposing of eligible business assets under the new changes? Looking at a hypothetical scenario involving the sale of a trading company as from the 6th April 2026, the following would apply…
Example:
- Business owner: A higher-rate taxpayer.
- Total sale proceeds: £2,500,000.
- Original investment (base cost): £100,000.
- Total capital gain: £2,400,000.
- BADR lifetime allowance available: The full £1,000,000.
(Note: For simplicity, this calculation assumes no other capital gains in the year and excludes the annual exempt amount, which is currently £3,000).
If the transaction completes under the new rules coming into effect from today, the tax is calculated in two tiers:
- The BADR portion: applies the full £1,000,000 lifetime limit to the first portion of the gain.
- £1,000,000 x 18% = £180,000
- The remaining gain: The rest of the gain is taxed at the standard upper Capital Gains Tax (CGT) rate of 24%.
- £1,400,000 x 24% = £336,000
- Total tax liability:
- £180,000 + £336,000 = £516,000
Calculation 2: Sale completed on or before 5th April 2026 (applying the 14% Rate)
For context, if the owner managed to complete the sale within the 2025/26 tax year, the liability would look quite different:
- The BADR portion:
- £1,000,000 x 14% = £140,000
- The remaining gain:
- £1,400,000 x 24% = £336,000
- Total tax liability:
- £140,000 + £336,000 = £476,000
The bottom line
By completing the sale after the 6 April 2026 threshold, the total tax bill would increase by £40,000 (£516,000 vs £476,000). The portion of the gain above the £1 million limit is treated exactly the same in both scenarios; the entire financial impact stems directly from the BADR rate rising from 14% to 18%.
