Business Asset Disposal Relief (BADR) remains one of the most valuable capital gains tax (CGT) reliefs available to individual business owners. It offers a reduced CGT rate of 14% for 2025/26 on qualifying gains, subject to a £1 million lifetime limit.
However, note that the BADR tax rate is set to increase to 18% from 2026/27, reducing the value of the relief for future disposals. Understanding when the qualifying period begins is therefore critical for effective planning.
How Long Must Shares Be Held?
For share disposals, BADR requires that the individual must have owned the shares for at least two years ending with:
- the date of disposal, or
- the date of cessation (if the business has stopped trading).
This article focuses specifically on BADR for the disposal of shares in a single (non-group) trading company.
What Counts as a ‘Trading Company’?
A trading company is assessed based on its trading activities. Importantly, for BADR, trading activities include more than actual trading.
Under TCGA 1992, s 165A (4), trading activities include activities carried on:
- for the purposes of a trade the company is preparing to carry on, or
- with a view to acquiring or starting to carry on a trade.
This means a company may qualify as a trading company even before it starts trading—if it is actively preparing to do so.
Case Study: Eyre & Ors v HMRC [2025] UKFTT 566 (TC)
The recent case Eyre & Ors highlights how complex “preparing to trade” can be in practice.
Background
- The taxpayers were directors of PSSL, incorporated in 2011.
- In 2016, PSSL acquired a property intending to develop it for profit.
- The existing rental income was not sufficient, and redevelopment was necessary to generate an acceptable return.
- The shareholders sold their shares in June 2018 and claimed BADR.
HMRC’s view
HMRC denied the claims on the basis that PSSL was engaged solely in property investment, not trading.
Tribunal findings
The FTT accepted that:
- PSSL took active steps toward redevelopment, and
- these steps were pre-trading activities for BADR purposes.
However, the Tribunal ultimately rejected the appeal because:
- non-trading activities formed a substantial part of PSSL’s overall activities.
As a result, PSSL did not qualify as a trading company throughout the two-year period.
HMRC Guidance: What Counts as ‘Preparing to Trade’?
HMRC’s Capital Gains Manual (CG64065) gives helpful examples of activities viewed as preparation for trade, including:
- Developing a business plan
- Acquiring premises
- Hiring staff
- Ordering materials
- Incurring pre-trading expenditure for the intended trade
These actions can help demonstrate trading intention—provided non-trading activities are not substantial.
