Who qualifies (and who doesn't)
Business Asset Disposal Relief (BADR), formerly Entrepreneurs' Relief, is the UK tax relief that taxes qualifying disposals of a trading business at 10% instead of the standard 18-24% CGT rate. For a freelancer selling a Ltd company or a sole-trader-going-concern, BADR can save tens of thousands. This guide walks through the qualifying criteria, the £1m lifetime cap, and the specific pitfalls for one-person freelance operations.
Who qualifies (and who doesn't)
Three tests, all must be met at disposal:
1. You're a director, officer or employee of the company for at least two years pre-disposal. 2. You own at least 5% of the ordinary share capital, with matching voting rights. 3. The company is a 'trading' company — not a passive investment holding or property-rental vehicle.
Sole traders qualify if they've traded 2+ years and are disposing of the business as a going concern.
The lifetime £1m limit and how it depletes
£1m is cumulative across all your qualifying disposals in your lifetime. If you sold a previous business for £300k gain and used BADR, you have £700k of cap remaining. Once you've used £1m, further gains attract the standard 18-24% CGT rate. Reduced from £10m in 2020.
Spouses each have their own £1m cap. If both spouses qualify (both are directors/employees + 5%+ shareholders + 2+ years), a £2m gain can be split with both applying BADR to their £1m portion.
Common freelance-specific pitfalls
Selling the client list only. If the deal is just goodwill transferred to a buyer while you close the Ltd shell, the goodwill sale may not qualify as a disposal of the business — it depends on whether what's transferred amounts to a going concern.
Non-trading investment inside the Ltd. A trading company that has significant investment activity (holding rental property, holding a portfolio of shares) can fail the 'trading company' test, forfeiting BADR.
Winding up too quickly. If you sell then dissolve within 3 years, and the same trade re-emerges via a new company, HMRC can apply anti-phoenix rules (targeted anti-avoidance rule).
Worked example
Owned 100% of the Ltd for 4 years, been sole director throughout. Company sold at £250,000 (buyer wanted the client contracts and IP). Original share subscription: £100. Chargeable gain: £249,900. BADR criteria all met: 4 years > 2, 100% > 5%, trading company. CGT: £249,900 × 10% = £24,990. Without BADR: £249,900 × 20% (assumed higher-rate CGT band) = £49,980. BADR saves ~£25,000 on this disposal. Post-BADR he has £750,100 of lifetime BADR cap remaining for future disposals.
Reference table
| Test | Requirement | Freelance-context notes |
|---|---|---|
| Director/employee role | Held for 2+ years pre-disposal | Include the founding period if you set up the company |
| Ordinary share holding | ≥5% with equivalent voting rights | Nearly all solo freelance Ltds satisfy at 100% |
| Trading company status | Trade > investment | Watch for large investment reserves inside the Ltd |
| £1m lifetime cap | Cumulative across all lifetime disposals | Spouse has separate cap |
| Pay CGT by | 31 January following tax year of disposal | Or 60 days via property disposals for real-estate specific |
BADR qualification checklist
- Confirm 24+ months as director on the Companies House record
- Confirm 5%+ ordinary shareholding + matching voting rights
- Review the company's balance sheet for non-trading activity/reserves
- If spouse is a shareholder + director + 2+ years, they qualify separately
- If prior BADR used, check lifetime cap remaining
- Draft the sale as a share disposal (not a distribution or dividend)
- Retain enough post-tax proceeds to fund the CGT bill in January
- Get accountant + solicitor involved before drafting SPA (share purchase agreement)
No. The 2-year holding requirement is strict. Extending the sale by 6 months is often worth doing to unlock the 10% rate.
It can apply to a partial disposal, provided you still meet the 5% shareholding test on what you're selling. Selling down from 100% to 50% qualifies; the 50% you keep can also qualify on later disposal.
Substantially trading rather than investment. HMRC considers the assets, income mix, and activities. As a rule of thumb, if less than 20% of assets/income are non-trading, you're usually fine. Higher levels of investment reserves put trading status at risk.
Yes — provided you've been trading for 2+ years and are disposing of the business as a going concern (or a self-contained part of it). The mechanics of a sole-trader disposal are usually simpler than a Ltd company sale.
Only if you're realising a capital gain on disposal. Loss-making companies rarely command purchase prices that generate significant chargeable gains. If the sale price is close to net asset value, there's little gain to relieve.
Sources & official references
Related on FreelanceToolkit UK
This guide is general information based on UK rules for the 2025/26 tax year. It is not personal tax or legal advice. For decisions affecting your tax position or legal exposure, consult a qualified accountant or solicitor.