Business Asset Disposal Relief is the tax break that is supposed to reward you for building a company from nothing and eventually selling it, and it has been quietly getting worse every year since 2024. The rate you pay on qualifying gains has gone up twice already, and the lifetime limit that used to sit at ten million pounds is now capped at one million. If you are a founder even loosely thinking about an exit in the next few years, you need to understand where this relief actually stands now, not where it stood when you first read about it.
I am writing this as someone who has built and sold software businesses, not as an accountant, and none of this is tax advice. Get a proper adviser before acting on any of it. But the direction of travel matters for how you plan, and it deserves more attention from founders than it gets.
What Business Asset Disposal Relief Actually Is
Business Asset Disposal Relief, still widely called Entrepreneurs' Relief by anyone who has been running a business for more than five years, lets you pay a reduced rate of Capital Gains Tax when you sell a qualifying business or shares in your own trading company. You need to have owned the business for at least two years and been an officer or employee with at least five percent of the shares and voting rights. Meet the conditions and the relief applies automatically to the first slice of your gain.
That slice used to be generous. Back when it was called Entrepreneurs' Relief, the lifetime limit was ten million pounds of gains taxed at ten percent, which meant a founder selling a genuinely successful business could keep the vast majority of the proceeds. That version of the relief no longer exists.
Where The Rate Actually Stands Now
The lifetime limit was cut from ten million to one million pounds back in 2020, which was the first big hit. Since then the rate itself has been rising in stages rather than one big jump, which makes it easy to miss how much has actually changed. What started as a flat ten percent rate has climbed in successive steps, and by the time you read this it sits well above where it did even two years ago, creeping closer to the standard higher rate of Capital Gains Tax rather than sitting meaningfully below it.
Run the numbers on a sale in the low millions and the gap is not small change. On a gain of one million pounds, the difference between the original ten percent rate and where the rate has climbed to now runs into tens of thousands of pounds, before you even get past the lifetime limit into gains taxed at the full standard rate.
Why This Matters More Than The Headline Rate Suggests
The lifetime limit is the part that catches people out. One million pounds sounds like a lot until you remember it covers your entire career as a founder, not just one sale. Sell a small agency for eight hundred thousand in your thirties and start again, and you have already used most of your relief before you build the business that actually makes you money. There is no reset, no separate allowance per company, just one lifetime pot that shrinks every time you use it.
For anyone running a SaaS business, this changes the maths on when to sell. I have written before about the actual decision of when to sell a SaaS business and when to keep building, and the tax treatment of the exit is now a bigger part of that calculation than it used to be. A business worth two or three million pounds used to mean most of the gain fell inside a generous relief. Now a meaningful chunk of that same sale falls outside the lifetime limit entirely and gets taxed at the full rate, which changes whether selling now or building for another few years actually leaves you better off.
The Knock On Effect For How Founders Plan Exits
I am already seeing this shift how founders around me think about structuring a sale. Earlier exits at lower valuations start to look more attractive relative to holding out for a bigger number, purely because more of a smaller gain sits inside the shrinking relief. Some are looking harder at staged disposals, spreading a sale across tax years or splitting a business into parts that can each qualify separately. None of it is about avoiding tax. It is about the relief becoming so thin that structuring around it is now worth the accountant's fee.
The Bigger Pattern Behind The Numbers
None of this happens in isolation. I have written before about how UK tax policy keeps punishing the people who start businesses, and this relief fits that pattern exactly. Every government since 2020 has chipped away at it a little more, always in small enough steps that no single change generates a proper outcry, but the cumulative effect over five years has been enormous. Ten million pounds at ten percent has become one million pounds at a rate closing in on double that, with no sign the direction is about to reverse.
The argument for cutting the relief is not unreasonable on its face. It costs the Treasury money, most of the benefit goes to a relatively small number of people, and in a period of tight public finances that is an easy political target. Founders selling businesses are not the most sympathetic group to campaign for. But the relief exists to reward the risk of building something from nothing rather than taking a salaried job with none of the downside, and shrinking it every year sends a clear signal about how much that risk is actually valued.
What This Means If You Are Planning An Exit
If you are anywhere near a potential sale, the practical takeaway is simple. Do not assume the numbers you read two or three years ago still apply, because they almost certainly do not. Get a clear picture of where your lifetime limit currently stands, particularly if you have sold anything before, and have that conversation with your accountant well before you are actually in a sale process. The relief depends on conditions you need to have met for at least two years before disposal, so decisions about shareholdings and business structure need to happen early, not scrambled together once a buyer is at the table.
My Honest Take
I understand why governments keep reaching for this particular lever. It raises real money and the people it affects are not going to win much public sympathy. But if the UK wants more people to take the risk of starting a business rather than staying employed, taxing the one moment where that risk finally pays off feels like exactly the wrong place to keep cutting. Every founder I know factors this into their planning now, not as an afterthought but as a genuine input into when and how they sell.
If you are building towards an exit, plan around the relief as it actually is today, not as it used to be, and get proper advice early rather than late. I help founders think through this kind of decision as part of the wider business consulting work I do, and it is a conversation worth having well before a buyer ever gets involved.
