Entrepreneur's Relief and Business Asset Disposal Relief for Expats

Business Asset Disposal Relief (BADR) — still commonly referred to by its former name, Entrepreneur's Relief (ER) — offers qualifying business owners a reduced capital gains tax rate on business asset disposals. Following two successive increases, the BADR rate is 18% for 2026/27 (it was 10% to 5 April 2025 and 14% in 2025/26), against the standard upper rate of 24% for higher-rate taxpayers. For business owners with significant equity, the relief can still mean material tax savings.

For expats and internationally mobile business owners, however, BADR is frequently misunderstood. Non-UK residency creates both obstacles and opportunities. This guide clarifies how BADR interacts with non-residence, what expats can and cannot claim, and the planning implications.

The rules around BADR are complex and have changed multiple times. This guide reflects the position as of 2026. Always take specialist advice before any disposal.

What Is BADR?

BADR was introduced as Entrepreneur's Relief by the Finance Act 2008 and renamed Business Asset Disposal Relief in 2020. It provides a reduced CGT rate — 18% for 2026/27 — on qualifying gains from the disposal of qualifying business assets.

As of 2026/27, the lifetime limit is £1 million of qualifying gains per individual. At the current 18% rate, this means a maximum saving of £60,000 per lifetime (the difference between the 18% BADR rate and the 24% standard upper rate, on £1 million of gains). The saving was larger when the BADR rate was lower — £140,000 when the rate was 10% — but successive rate rises have eroded the benefit.

Note: BADR was historically much more generous — the lifetime limit was £10 million until March 2020. The reduction to £1 million significantly limited the relief's value, particularly for founders of high-growth businesses.

Qualifying Conditions

To qualify for BADR, the following must all be satisfied throughout the relevant qualifying period (normally the 2 years immediately before the disposal):

1. Ownership: The individual must hold at least 5% of the ordinary share capital and 5% of the voting rights in the company.

2. Employment: The individual must be an officer or employee of the company (director or employee status required — a non-executive director qualifies, but a pure shareholder does not).

3. Trading company: The company must be a trading company (or the holding company of a trading group). Companies with investment activities must ensure these do not constitute a substantial part of the business (broadly, investment activities exceeding 20% of relevant indicators may disqualify the company).

4. Economic interest: There is an additional test requiring that the individual has at least 5% entitlement to distributable profits and 5% of the net assets on winding up — preventing structures where shares are designed to have minimal economic interest.

5. Timing: All conditions must have been satisfied for at least 24 months continuously, ending on the date of disposal. If any condition is broken — for example, if a dilution below 5% occurred in the 2 years before sale — the relief may be lost.

Non-Residence: Does BADR Still Apply?

The Core Question

UK capital gains tax applies to UK-resident individuals. Non-UK residents are generally not subject to UK CGT on the disposal of UK company shares (unlike UK real estate, which is always taxable in the UK for non-residents).

This raises the question: if you are non-UK resident when you sell your shares, do you pay UK CGT at all — and if not, is BADR relevant?

Scenario 1: Non-Resident, No UK CGT Exposure

If you are non-UK resident when you sell shares in a UK company, and the company does not hold predominantly UK real estate, the disposal is generally outside the scope of UK CGT. In this case, you do not pay UK CGT — at any rate — on the gain. BADR does not need to apply because there is no UK tax to reduce.

The gain may be taxable in your country of residence. If you are resident in the UAE (no CGT), Singapore (no CGT), or similar zero-CGT jurisdiction, the gain is not taxed anywhere. If you are in Spain, Germany, or Australia, local CGT will apply.

Scenario 2: UK Resident at Disposal — BADR Applies Normally

If you are UK-resident at the time of disposal, UK CGT applies in the normal way. BADR reduces the rate to 18% (2026/27) on qualifying gains up to the £1 million lifetime limit, subject to the qualifying conditions being met.

For expats planning to return to the UK before a business sale, this means UK CGT at potentially 24% will apply, with BADR available to reduce the rate on the first £1 million of gain.

Scenario 3: Temporary Non-Residence

The most complex scenario. The Temporary Non-Residence (TNR) rules can catch gains realised during a period of non-UK residence if the taxpayer returns to the UK within 5 years (specifically, within 5 complete tax years of non-residence).

Under the TNR rules, gains on assets held before departure that are realised during the non-resident period are charged to UK CGT in the year of return, as if they had arisen in that year. BADR can apply to these gains — if the qualifying conditions were met at the time of disposal.

Key point: BADR is assessed at the time of disposal. If the qualifying conditions (5% shareholding, employment/directorship, trading company) were met for 2 years before the disposal, BADR is available — even if the gain is only charged to UK CGT on return due to TNR rules.

Example: A UK national held 20% of a trading company as a director for 8 years, then moved to Singapore (non-resident). After 2 years in Singapore, they sold their shares (satisfying the 2-year qualifying period throughout). The gain was not taxed at the time due to non-residence. Four years after departure, they returned to the UK (within 5 years). The TNR rules charge the gain in the year of return. BADR is available — qualifying conditions were met at disposal. The first £1 million of gain is taxed at the BADR rate applying in the year the gain is charged (18% for a charge falling in 2026/27).

Scenario 4: Non-UK Resident, UK Property Company

If the company sold is a "property-rich" company — holding mainly UK land and property — capital gains may be taxable in the UK even for non-residents (under the non-resident CGT rules for gains on property-rich entities). In this case, UK CGT applies, and BADR may be available if qualifying conditions are met.

BADR Qualifying Period: Pitfalls for Expats

Directorship

Many expats who have left the UK resign their UK company directorships on departure — sometimes as a matter of corporate tidiness, sometimes on advice. If you resign as a director more than 24 months before disposal, the BADR employment/directorship condition is broken.

This is a common and costly mistake. Unless you are definitely not returning to the UK or the UK company has no value, maintaining some form of directorship or employment through the period of non-residence preserves the BADR option.

Note: an employee working for a company from abroad can satisfy the employment condition even without a physical UK presence, provided the employment relationship is genuine and properly documented.

Dilution Below 5%

If the company has raised additional investment rounds, issued new shares, or undergone other changes that diluted your holding below 5% in the 24 months before disposal, BADR is lost. Planning equity structures carefully — using shareholder agreements, anti-dilution provisions, and pre-emption rights — protects against inadvertent BADR loss.

Trading Status

The company must remain a trading company throughout the qualifying period. If the company has transitioned towards investment activities — accumulating cash, acquiring investment property, or generating predominantly investment income — BADR may be at risk. The "20% test" (investment activities not exceeding 20% of balance sheet, income, or other relevant indicators) is the relevant benchmark.

Employment vs Consultancy

A director who becomes a consultant — providing services through their own company rather than as a direct employee or officer — may not satisfy the employment condition. Ensure that any change in relationship with the company is reviewed for BADR implications.

BADR and Trusts

BADR can apply to gains arising in certain trust situations, but the rules are complex and more restrictive. For business owners who have placed their shares into trust, specialist advice on whether and how BADR can apply in the trust context is essential.

Interaction With Investors' Relief

Investors' Relief is a separate CGT relief for qualifying external investors in unquoted trading companies who are not employees of the company. Its rate tracks BADR — 18% for 2026/27 (10% to 5 April 2025, 14% in 2025/26). Critically, its lifetime limit was cut from £10 million to £1 million for disposals on or after 30 October 2024, so it no longer offers the materially higher allowance it once did. Investors' Relief requires a 3-year holding period from subscription of new shares after 17 March 2016 and no employment with the company at any point from 6 April 2016.

For expats who have invested in UK start-ups without being employees, Investors' Relief remains potentially useful — but note that, since the lifetime limit was reduced to £1 million, it is now in line with BADR rather than offering a larger allowance.

Post-Disposal Planning

For expats who realise qualifying gains and benefit from BADR, the remaining net proceeds need careful planning:

• Pension contributions: If returning to the UK with UK-relevant earnings, maximise pension contributions in the year of return (potentially £60,000 plus carry forward).
• Offshore bonds: Proceeds not needed immediately can be placed in an offshore investment bond, particularly if further periods of non-UK residence are anticipated.
• EIS/SEIS: Reinvesting gains into qualifying EIS or SEIS investments can defer or exempt remaining CGT (above the BADR-eligible £1 million).
• Timing of return: If the TNR rules apply, the gain is charged in the year of return. Timing the return carefully — and maximising available allowances and deductions in that year — is important.

Planning Checklist for Expat Business Owners

Before any disposal, consider:

• Am I UK resident, non-resident, or temporarily non-resident? What are the CGT implications?
• Do I meet all BADR qualifying conditions (5% holding, employment/directorship, trading company, 2-year period)?
• Have I maintained directorship or employment continuously for 24 months before disposal?
• Has my shareholding stayed above 5% throughout?
• If non-resident: might I return to the UK within 5 years? If so, TNR rules may charge the gain — BADR may still apply.
• What are the local tax implications in my country of residence?
• What is the optimal structure for the post-disposal proceeds?

How Global Investments Can Help

Global Investments works alongside specialist corporate and tax solicitors to help expat business owners navigate BADR and the interaction with non-residence rules. We advise on pre-disposal structuring, the implications of different residency scenarios, and the optimal financial plan for post-sale proceeds.

Whether you are years away from a business exit and want to plan carefully, or approaching a transaction and need urgent analysis, our team can help. Contact us to arrange a consultation.

Capital is at risk. BADR conditions and CGT rates may change. Tax treatment depends on individual circumstances. This article is for information only and does not constitute legal, tax, or financial advice.