Business Asset Disposal Relief: Window Closing
1. Introduction: Why This Change Matters
After the Budget last week, if there’s one certainty in the UK tax world, it’s that nothing stays still for long. And today, the spotlight is on Business Asset Disposal Relief (BADR) – formerly known as Entrepreneurs Relief – the tax relief many contractors, freelancers, and owners of a personal company rely on when they close down or sell their business.
Right now, Business Asset Disposal Relief gives owners of qualifying business assets a 14% tax rate on the first £1 million lifetime limit of gains. But from 6 April 2026, that rate rises to 18%. On paper, a 4% increase doesn’t sound dramatic. In reality, it’s a straight, unavoidable cut to the money you walk away with – £4,000 lost for every £100,000 in your company.
And here’s the part some of our clients miss: you can’t simply decide to shut down your trading company in March and expect to lock in the 14% rate. If you’re planning a Members’ Voluntary Liquidation (MVL), the lower rate only applies when the money from the liquidation is actually paid out, not when you start the process.
So, whether you’re finishing up your contracting career, moving into full-time work, or simply ready to wrap up a long-running business, the window for securing the 14% rate on your exit is open – but rapidly closing.
In our blog today, we’ll break down what the rate change means, who needs to take action to claim BADR, and how to avoid the complex rules that could leave you paying more than necessary.
2. A Quick Refresher: What Actually Is BADR?
Before we get into deadlines, let’s revisit what Business Asset Disposal Relief actually does. This relief reduces the Capital Gains Tax (CGT) you pay when you sell your business or close your company. For most contractors, this means treating the remaining cash as a capital distribution from the final closure, rather than as dividends subject to Income Tax.
Under Business Asset Disposal Relief (BADR) you pay:
- 14% Capital Gains Tax on qualifying gains now
- 18% from 6 April 2026
- You can claim on up to the £1 million lifetime limit of gains.
Why BADR matters
The alternative to taking your profits via a capital distribution is to take them as dividends. Without Entrepreneurs Relief (as it was previously called), dividends are taxed at much higher rates:
- 8.75% (basic rate)
- 33.75% (higher rate)
- 39.35% (additional rate)
So, Business Asset Disposal Relief makes a huge difference. For example, on £100,000 of retained profits:
- Tax at 14%: £14,000 liability
- Tax at 18%: £18,000 liability
- Dividend (higher rate): around £33,750 liability
Even at 18%, capital treatment is far more tax-efficient than dividends – but the current 14% rate is a genuine saving.
Who can claim it?
Most contractor-owned limited companies qualify. To be eligible, you generally must meet the personal company tests:
- The company is a trading company (or the holding company of a trading group).
- You are an employee or office holder (e.g. one of the company directors).
- You hold at least 5% of the ordinary share capital and voting rights.
- You are beneficially entitled to at least 5% of the profits available for distribution to equity holders.
- You have met these conditions for a full two year period before the date you sell or close.
Note: While this guide focuses on limited companies, sole traders selling part of their sole trade or partners selling qualifying assets can also qualify for BADR. Specifics apply if you are selling shares or company shares acquired via an Enterprise Management Incentive (EMI scheme), where the qualifying period rules may differ.
Also important: The company stops being a trading company when it ceases activity, but you can usually still claim if you distribute assets within three years. If you meet the eligibility criteria, Business Asset Disposal Relief is likely available.
3. The April 2026 Rate Rise: What’s Changing?
The headline change in the Finance Act is straightforward: from 6 April 2026, the Business Asset Disposal Relief rate increases from 14% to 18%. It’s a single line in legislation, but the impact on your final sale proceeds is real.
Why does this matter now?
Because tax rates apply at the moment you receive the capital distribution, not when you start the liquidation process. Even if you appoint a liquidator before April 2026, if the transfer of funds happens in the new tax year, the higher 18% rate will apply to your chargeable gains.
With the usual delays involved in Members’ Voluntary Liquidations (MVL), many contractors will find that a “quick” closure in spring 2026 is far from guaranteed.
If you have £25,000 or less: No MVL needed
There is one important exception to the need for a formal liquidator. Under Section 1030A of the Corporation Tax Act 2010, if the total distributions from the company are £25,000 or less, you do not need an MVL – effectively this applies to businesses with less than £25,000 in cash and assets (once all liabilities such as business taxes have been paid).
Instead, you can use the informal strike-off process (Form DS01). As long as your total reserves are under this cap, the payout is automatically treated as capital rather than income. You can then claim BADR on this amount in your Self Assessment tax return.
However, the deadline still applies: To secure the 14% rate, you must actually pay the funds from the company bank account to your personal account before 6 April 2026. If you transfer the money after this date, even if the strike-off process started earlier, the distribution falls into the 2026/27 tax year and will be taxed at 18%.
What this means for business owners
If you want the 14% rate on your business asset disposal, you have a hard deadline of 5 April 2026 for receiving your distribution. Anything paid on or after 6 April falls into the new tax year and the 18% regime. This applies even if the lifetime limit reduced in previous years; the rate is what matters now.
4. The Part Contractors Often Miss: MVLs Take Time
If you’re planning to close your business using a Members’ Voluntary Liquidation (MVL), understand this: you only get the 14% Business Asset Disposal Relief rate when the money is paid out.
MVLs are a formal process. It involves signing a Declaration of Solvency regarding your finances, passing resolutions regarding share capital, and waiting for the bank to transfer the company’s main activities and accounts to the liquidator. Until the liquidator controls the funds, they can’t issue distributions.
Why this matters for the April 2026 deadline
If you wait until February or March 2026 to start the process, bank delays could push your distribution into the next tax year. At that point, the rate on your capital gains is 18%. Starting late could cost you thousands because the process took too long.
The safe window
To secure the 14% tax benefit, you should aim to have:
- The MVL initiated by early January 2026.
- All funds distributed by 5 April 2026.
Remember to utilise your annual exemption for Capital Gains Tax to further reduce the tax paid. You cannot postpone paying tax indefinitely; the payment deadline is usually the January following the tax year end.
5. TAAR: The One Rule That Does Catch Contractors
While most changes won’t trouble limited companies, the Targeted Anti-Avoidance Rule (TAAR) is an important exception when you claim BADR. TAAR stops people from using an MVL to access capital gains rates on accumulated profits, only to start up again immediately.
Under TAAR, if you liquidate, claim relief, and then, within two years, continue a similar trade (the same conditions apply if you act with a civil partner, business partner or within the same group), HMRC can treat your payout as income dividends. This often happens with a subsequent disposal or restart.
For most people genuinely finishing contracting, TAAR isn’t a problem. But if you close Company A, qualify for BADR, and start Company B doing the same work, you are in TAAR territory. The closure needs to reflect a genuine end to that business. Be wary of non trading activities or holding excessive investment funds, as these can affect your status.
6. Who Should Be Thinking About an MVL Before 6 April 2026?
With the 14% rate disappearing, does an MVL make sense for you?
✔ You’re finishing contracting for good
If you are winding down, an MVL claiming Business Asset Disposal Relief usually delivers the best outcome.
✔ You’re moving into full-time employment
If the personal company won’t be used again, liquidating avoids higher future taxes on your retained profits.
If you are relocating, closing the company allows you to realize gains and lock in the 14% relief.
✔ You’ve built up significant retained profits
If your company has substantial cash reserves (over £25,000), capital treatment via Business Asset Disposal Relief is more efficient than dividends.
✖ Not suitable if you plan to contract again soon
If you will use a new company for similar activities, TAAR may apply. In certain circumstances, it is better to keep the funds in the existing company rather than triggering a tax return event.
7. Final Wrap-Up: Don’t Leave This Until the Last Minute
The jump from 14% to 18% on Business Asset Disposal Relief is significant for anyone with meaningful qualifying assets. Unlike many tax planning opportunities, this comes with a fixed deadline.
If an MVL is on your radar, start early. The relief rate depends on when the cash is distributed. With delays often taking weeks, beginning the process in February 2026 is risky.
Whether you are a sole trader making qualifying disposals, a director with ordinary shares, or selling assets in your own right, acting now could save thousands. We can guide you through the eligibility criteria, ensuring you issue shares immediately if needed to start the clock, and help you qualify for BADR cleanly.
There are other rules to consider, such as whether a hold falls under the lifetime allowance (a term often confused with the lifetime limit) or if an associated disposal is relevant. Rules depending on the first anniversary of trading can also impact your claim.
At No Worries Accounting, we help owners handle their company closure efficiently. If you want to ensure you don’t miss the 14% window for Business Asset Disposal Relief, we can guide you through every step.