Originally published: 2 October 2023 | Last updated: 23 January 2026
Business Asset Disposal Relief (BADR) is the single biggest tax-saving opportunity when closing a company. When used through a Members’ Voluntary Liquidation (MVL), BADR can dramatically reduce the tax you pay on your final payout.
This guide explains how BADR works in a liquidation, who qualifies, the applicable tax rate, how to claim it, and why an MVL is the most tax-efficient route for many company owners.
What is Business Asset Disposal Relief?
Business Asset Disposal Relief (BADR), previously known as Entrepreneurs’ Relief, is a valuable tax relief that reduces the Capital Gains Tax you pay when disposing of a trading business or closing it through a Members’ Voluntary Liquidation. If you qualify, your gain is taxed at a significantly lower rate than standard CGT or Income Tax.
Key points for 2025–26:
- The BADR CGT rate is 14% (increases to 18% from April 2026)
- The lifetime limit is up to £1 million in qualifying gains per individual.
- Works with an MVL, as it is most commonly used when distributing retained profits in a solvent liquidation
- Not available on strike off because BADR only applies in a formal liquidation or disposal process, not a DS01 dissolution.
This relief is a core reason why many owners choose an MVL when extracting larger reserves, as BADR can significantly reduce the tax paid on final distributions.
Why BADR is important in a Members’ Voluntary Liquidation
A Members’ Voluntary Liquidation is often the most tax-efficient way to close a solvent company because the funds you receive are taxed as capital gains rather than income. This alone can reduce your tax bill compared to taking the money as dividends.
When BADR is available, the tax savings are even greater because qualifying shareholders pay a lower CGT rate on their distribution. For anyone withdrawing more than £25,000 from their company, an MVL paired with BADR is usually the most efficient route.
Related: Members’ Voluntary Liquidation Tax: A Guide for Directors
How BADR works when closing a company through an MVL
When a solvent company is closed using a Members’ Voluntary Liquidation, the remaining funds are formally distributed to shareholders. This is the point at which Business Asset Disposal Relief can be applied.
Here is how the process works step by step:
Step 1: The company enters an MVL
A licensed Insolvency Practitioner (IP) is appointed to carry out the liquidation. Only a formal MVL allows BADR to be claimed on final distributions.
Step 2: The IP realises the company assets
Cash at Bank, equipment, and any other assets are gathered or sold so the company’s final value can be distributed to shareholders. Many companies sell assets before entering an MVL to speed up this process.
Step 3: Funds are distributed to shareholders
Because the company is in an MVL, these payments are classed as capital distributions, not income. This is essential because only capital distributions can qualify for BADR.
Step 4: BADR can reduce the tax rate
If you meet the HMRC criteria, BADR reduces the Capital Gains Tax rate on the distribution to 14% in the 2025–26 tax year. From 6 April 2026, the BADR rate increases to 18%.
Step 5: You claim BADR through your tax return
The distribution date, not the MVL start date, determines which tax year the disposal falls into.
This process is what makes an MVL one of the most tax-efficient ways to close a solvent company. BADR and CGT treatment together can reduce your tax bill significantly compared to taking dividends or using a strike-off.
BADR example: How much tax BADR can save in an MVL
To illustrate how Business Asset Disposal Relief works in practice, the following is a simplified example. A Director is closing a solvent company through an MVL. The company has £100,000 in retained profits that will be distributed as capital gains.
If BADR is not available (CGT at 24%): Tax due: £24,000
If BADR is available (CGT at 14%): Tax due: £14,000
Total tax saved using BADR: £10,000
This gap widens significantly as the distribution amount increases. For example:
- On £250,000, BADR could save £25,000
- On £500,000, BADR could save £50,000
- On £1 million, BADR saves £100,000 compared to standard CGT, and far more when compared to dividend tax rates.
Because MVL distributions qualify as capital rather than income, BADR often delivers the lowest possible tax rate available when closing a solvent company. You can see a full breakdown of how the relief is calculated in our guide on calculating Business Asset Disposal Relief.
BADR eligibility criteria
To claim Business Asset Disposal Relief on a liquidation, you must meet all of the standard HMRC conditions. These rules make sure the relief only applies to genuine business owners closing or disposing of a trading company.
Shareholding requirement
You must own at least 5% of the company’s ordinary shares, have 5% voting rights, and be entitled to 5% of the distributable profits. This confirms you have a meaningful ownership stake in the business.
Employment requirement
You must be an employee or a Director of the company. This can include non-executive roles, as long as you officially hold an office or employment position.
Two-year holding period
You must meet both the ownership and employment criteria for at least two years preceding the liquidation distribution. This prevents short-term share transfers purely to access BADR.
Trading company requirement
The company must be a trading company, not mainly an investment business.
HMRC expects trading activity to account for around 80% of the company’s income, assets, and expenses. If the company has become passive or investment-focused, BADR may not apply.
Lifetime limit
BADR can be claimed on up to £1 million in qualifying gains during your lifetime.
Once you reach this limit, any further gains are taxed at standard Capital Gains Tax rates.
When BADR does not apply
BADR cannot be used in every situation. It will not apply if you close your company through a voluntary strike-off using form DS01, as strike-offs do not constitute a formal disposal for Capital Gains Tax purposes. The company must also be solvent and placed into a Members’ Voluntary Liquidation, so BADR is not available in a Creditors’ Voluntary Liquidation.
You must meet all HMRC conditions for the relief. BADR will not apply if the company is not a trading company, if you hold less than 5% of the shares or voting rights, or if you have not met the two-year qualifying period as a Director or employee. Missing the claim deadline also means the relief cannot be applied, even if you would otherwise qualify.
How to claim BADR on liquidation
You claim Business Asset Disposal Relief after your MVL distributions have been paid to you. The claim is made through HMRC, not through the liquidator, although your accountant will usually prepare the paperwork.
How to make the claim
You can claim BADR by:
- Completing your Self Assessment tax return for the relevant tax year.
- Using HMRC’s Business Asset Disposal Relief claim form (HS275) if additional information is needed or if you are claiming outside the standard tax return process.
Important deadlines
You must submit your claim by the first 31 January after the end of the tax year in which the MVL distribution took place. The key point is that the distribution date determines the tax year, not the date the MVL was initiated.
For example, if your MVL distribution was paid on 1 July 2025, the deadline to claim BADR is 31 January 2027. Missing the deadline usually means you cannot claim the relief.
Information you will need
When preparing your BADR claim, HMRC may require:
- The distribution statement provided by your liquidator
- The total amount distributed to you
- The date(s) the distribution was made.
- Evidence that you met the BADR qualifying conditions (shareholding, employment, trading status) throughout the two years.
Most shareholders rely on their accountant to prepare the claim and ensure it is submitted within the correct timeframe.
BADR on other assets during liquidation
BADR can apply to more than just your company’s retained profits. Depending on the assets being disposed of during the MVL, relief may also be available for shares, company assets, and certain personally owned assets.
Shares
BADR can apply when you dispose of shares during the liquidation. The key requirement is that you meet the ownership and employment criteria.
- You must have held at least 5% of the shares and voting rights for at least two years.
- The company must also meet HMRC’s definition of a trading company.
If these conditions are met, the gain on your shares can qualify for the reduced BADR CGT rate.
Company-owned assets
BADR may also apply to gains made from selling company-owned trading assets. This includes items such as machinery, equipment, and commercial property used by the business.
To qualify, the assets must be used for trading purposes and are typically sold within three years of the company ceasing to trade.
Associated disposals
Associated disposals relate to personally owned assets used in the company’s trade, such as a personally owned van or tools used solely for business purposes.
To qualify, the shareholder must dispose of both the asset and their shares in connection with the business closing. HMRC sets strict criteria, so associated disposals only qualify when the asset was genuinely used for business purposes, and the shareholder meets all BADR conditions.
Related: What Happens to Shareholders When a Company Is Liquidated?
Clarke Bell can help
If you are considering closing your company and want to determine if you qualify for BADR, Clarke Bell can help. We specialise in Members’ Voluntary Liquidations and can guide you through the process, confirm eligibility, and help you extract your profits in the most tax-efficient way.
Get free advice today and find out if BADR can help reduce your tax bill.
