What do the Budget’s changes to BADR lifetime limit mean for you and your company?
- The Business Asset Disposal Relief lifetime limit falls from £1 million to £500,000 for disposals made from 06/04/2027.
- The BADR rate stays at 18%. Gains above the limit are taxed at the main Capital Gains Tax rates, currently up to 24%.
- On a £1 million gain, that could mean up to £30,000 more tax.
- In an MVL, the timing of distributions to shareholders matters, and an MVL takes time to set up, so planning early is sensible.
- If you're unsure whether this affects you, speak to your accountant and to a licensed insolvency practitioner.
The 2026 Budget has confirmed that the lifetime limit for Business Asset Disposal Relief (BADR) will fall from £1 million to £500,000 for disposals made from 6 April 2027.
While the government has predicted that three in four Business Asset Disposal Relief claimants won't be affected, if you are planning to close a solvent company through a Members' Voluntary Liquidation (MVL) and your gains are likely to go above £500,000, the timing of your closure now matters more now than it did previously.
What exactly is changing with MVLs, and when?
Business Asset Disposal Relief (formerly Entrepreneurs' Relief) reduces the rate of Capital Gains Tax on qualifying business disposals. This includes those made via an MVL. It applies up to a lifetime limit, so once you've used your allowance, any further gains are taxed at the main rates.
The changes to Business Asset Disposal Relief (BADR) as of April 2027 are as follows:
| Before 06/04/2027 | From 06/04/2027 | |
| BADR lifetime limit | £1 million | £500,000 |
| BADR rate | 18% | 18% (unchanged) |
| Gains above the limit | Main CGT rates, up to 24% | Main CGT rates, up to 24% |
To qualify for BADR when closing a company, you'll usually need to have held at least 5% of the shares and voting rights, and been an employee or office holder, for at least two years. The disposal also generally needs to happen within three years of the company stopping trading. GOV.UK sets out the full conditions.
Will the change affect me?
Whether you will be affected by the new reduction in BADR limits, depends on how large your gains are, and how much of your lifetime limit you've already used. If your total qualifying gains stay under £500,000, then nothing changes for you. If they're above that, the difference can be significant and you should consider the timing of any proposed MVL.
If you are thinking about closing your company via an MVL, and you believe you will have in excess of £500,000 to distribute, you should make it a priority to seek advice from a licensed insolvency practitioner as soon as possible. Getting your MVL lined up before April 2027 could save you a huge amount when it comes to your overall tax liability.
"While many of the directors we speak to won't be affected by this change to the lifetime limit of Business Asset Disposal Relief, for those with larger reserves who were already thinking about closing, it's worth having the timing conversation with us now rather than in the spring."
- Julie Palmer, Partner, BTG Begbies Traynor
What does this mean if I'm planning an MVL?
An MVL is the formal way to close a solvent company. A licensed insolvency practitioner is appointed as liquidator, realises the company's assets and distributes what's left to shareholders. Those distributions are usually treated as capital rather than income, which is what allows BADR to apply.
Why does timing matter?
An MVL isn't instant. Before the liquidator can pay out, a few things need to happen:
- The directors swear a Declaration of Solvency, confirming the company can pay its debts in full within 12 months.
- The shareholders pass a resolution to wind up the company and appoint the liquidator.
- The liquidator collects the assets, settles any liabilities, and obtains HMRC clearance where needed.
- Distributions are paid to shareholders.
How long this takes depends on the company. Some MVLs are straightforward; others involve property, trading debts, or tax matters that need settling first. If you want your distributions to fall before the 6 April 2027 deadline, it's sensible to start the conversation now rather than leave it until March.
Is an MVL still right for me?
Even after the changes to Business Asset Disposal Relief come into effect, for many directors, an MVL will still be the best way to extract the money from a solvent company which is being wound down.
Even above the new limit, capital treatment is still likely to be more tax-efficient when compared to taking reserves as dividends. But every situation is different. The right choice depends on your reserves, your other income and your plans after closing.
Our licensed insolvency practitioners are here to help you understand your options when winding down a solvent company and will talk you through exactly what these changes to the Business Asset Disposal Relief lifetime limit mean for you and your company. Contact us today for immediate help and advice.
More BTG Begbies Traynor Articles
