Business Asset Disposal Relief (BADR) reduces the rate of CGT to 14% on qualifying disposals, up to a lifetime limit of £1 million of gains. For property sellers, the first question is whether BADR applies at all. In most cases, it does not — and for holiday lets specifically, the abolition of the FHL regime in April 2025 removed the main route by which residential property could attract BADR. Our guide to CGT on a holiday let after April 2025 explains what replaced the old rules.
The rate change to note
BADR was 10% until 5 April 2025. From 6 April 2025, the rate rose to 14%. It is due to rise again to 18% from 6 April 2026. If you are timing a disposal specifically to use BADR, this rate trajectory matters.
What BADR applies to
BADR applies to disposals of:
- Shares in a company that is a qualifying trading company, where you have held at least 5% of the shares and voting rights for at least two years
- Assets used in a business that is being sold or closed, including goodwill, equipment, and business property
- Shares received in an Enterprise Management Incentive scheme
- Agricultural land in some circumstances
The common feature is that the asset must have been used in a qualifying trade. Investment is not a trade.
Why residential property does not qualify
Buy-to-let properties, second homes, holiday lets (after April 2025), and properties held as investments do not qualify for BADR. The activity of owning and letting residential property is not a trade for this purpose. It is an investment.
HMRC has consistently held this position, and it has been upheld in cases where landlords argued that the scale or organisation of their lettings activities constituted a business. Unless HMRC publishes revised guidance, residential investment property is outside BADR.
The limited situations where property can attract BADR
There are narrow scenarios where a property disposal might qualify:
Property used in a trade. If you own a shop and the trading company or sole-trader business sells, the property used in that business (the shop premises) qualifies as a business asset. BADR can apply to the gain on the property, subject to the two-year ownership and trading conditions.
Shares in a company that holds property as a business. If a company operates a qualifying trade and happens to own property as part of that trade, selling shares in that company can attract BADR. But the company's activities must be mainly trading, not mainly investing.
Property development. A property developer who buys land or property, develops it, and sells may be carrying on a trade. If so, the developed property is trading stock, not a capital asset. The gain is income, not a capital gain, and BADR does not arise because there is no CGT. This is actually worse in some respects.
What about commercial property?
Commercial property held as an investment also falls outside BADR. However, commercial property held as part of a trading business (the premises from which the business operates) can qualify, in the same way as described above.
Commercial property also qualifies for rollover relief and gift holdover relief, which are not available for residential investment property. If you are selling commercial premises, take specific advice on the reliefs available.
What the 24% rate means in comparison
For residential investment property, the rate is 18% or 24% depending on your income. For a higher-rate taxpayer on a substantial gain, the difference between 24% and 14% BADR is significant. This is partly why incorporation was attractive to some landlords, though the post-corporation-tax extraction costs erode much of the saving.
If you are selling a portfolio and the question of whether any assets might qualify for BADR has come up, take specific advice before completion. Once contracts exchange, the position is difficult to change.
LetsFile's Chartered Accountant/Chartered Tax Advisor can review whether BADR applies to your disposal before we prepare the return.