Capital Gains Tax

Can I claim Business Asset Disposal Relief on a small minority shareholding?

Answered by Jordan Onraet-Wells, Founder & Chartered Tax Adviser (CTA). Published 17 August 2026. Last reviewed 17 August 2026.

The short answer

Not on ordinary shares. To claim Business Asset Disposal Relief on a share sale the company must be your personal company throughout the two years ending on the date of disposal, which means at least 5% of the ordinary share capital, at least 5% of the voting rights and at least 5% of the economic rights, alongside being an officer or employee of a trading company. A 4.9% holding kept for a decade gets nothing, while 5% held for exactly two years gets the full relief, which for disposals on or after 6 April 2026 means an 18% rate on the first £1 million of lifetime gains instead of the main 24% rate. The one exception is shares acquired by exercising qualifying EMI options, which sit outside the 5% tests altogether.

The 5% tests apply three ways: ordinary share capital, voting rights, and either distributable profits and assets on a winding up or 5% of the proceeds if the whole company were sold.
You must also be an officer or employee of the company or its group, and the company must be trading, with every condition met throughout the two years ending on the day you sell; HMRC has no discretion to overlook a shortfall.
BADR taxes qualifying gains at 18% for disposals on or after 6 April 2026 (14% in 2025/26, 10% before that), against normal CGT rates of 18% and 24%, with a £1 million lifetime limit measured in gains, not proceeds.
EMI shares are the exception: shares from qualifying EMI options acquired after 5 April 2013 escape the 5% tests, provided the option was granted at least two years before the sale.
Dilution below 5% in a funding round ends qualification from that moment, though a statutory election can bank relief on the gain to the date of dilution.

The 5% tests are a cliff edge, not a slope

Length of service and seniority do not substitute for the percentages. For a sale of ordinary shares, every condition must hold throughout the two years ending on the date of disposal: at least 5% of the ordinary share capital, at least 5% of the votes, at least 5% of the economics, a role as officer or employee, and a trading company rather than an investment vehicle (GOV.UK). The economic limbs were added from 29 October 2018 specifically to catch alphabet share structures that carry votes but a sliver of the economics, so check the articles and any shareholders' agreement, not just the cap table. A fortnight short of two years is a failed claim, not a rounding error. Our guide to selling shares in your company sets out the full conditions and the timeline of a clean sale.

The EMI exception: relief on a fraction of a percent

Shares acquired by exercising qualifying Enterprise Management Incentive options are outside the personal company tests altogether. GOV.UK applies the 5% requirements only to shares that are not from an EMI scheme; for EMI shares the conditions are instead that you acquired them after 5 April 2013 and that the option was granted at least two years before you sell (GOV.UK). An employee exercising EMI options can therefore reach the 18% rate on a holding far below 5%, which is one reason EMI remains the default equity tool for UK private companies. If your equity crosses borders, or involves US style awards rather than EMI, see our guide to share options and equity awards across borders.

Under 5% with no EMI shares? Fix it early or not at all

The planning question is whether the position can properly be repaired more than two years before an exit, for example by acquiring further shares or restructuring share rights: legitimate if done in real time and reflected in real rights, useless if attempted the year the buyer appears. Watch dilution too, because a funding round that takes you from 5.5% to 4.8% ends qualification from that moment, although a statutory election can treat you as having disposed of the shares at market value just before the dilution and bank the relief earned to that date. The claim itself is never automatic: for a 2026/27 disposal it must be made by 31 January 2029, normally through your Self Assessment return. Horizon UK Tax Solutions reviews BADR positions before a deal on fixed fees agreed upfront, with complex advisory work from £750, and a free 30-minute clarity call is the place to start if an exit is on the horizon.

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Sources and further reading

This is general information for the 2026/27 UK tax year, not personal tax advice; speak to a Chartered Tax Adviser about your own position.

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