Business Asset Disposal Relief (BADR) reduces the Capital Gains Tax rate on qualifying business disposals, up to a £1m lifetime limit per individual. For a contractor it most commonly applies when winding up a PSC through a Members' Voluntary Liquidation and distributing the reserves as capital.
The BADR rate has been rising. It was 14% for disposals from 6 April 2025 to 5 April 2026, and is 18% for disposals on or after 6 April 2026, so the 2026/27 rate is 18%. The £1m lifetime limit is unchanged. To qualify, conditions must be met throughout the 2-year period to disposal: the company is the individual's personal company (at least 5% of ordinary share capital and voting rights, plus a 5% economic entitlement), the individual is an officer or employee, and the company is trading.
Whether BADR is worth pursuing depends on the size of the reserves, the £1m limit, the 18% rate (now the same as the standard CGT rate for many disposals), and crucially the winding-up TAAR. If the contractor intends to keep working in the same field within two years of the distribution, the TAAR can re-characterise the capital distribution as an income dividend, in which case BADR is irrelevant. Always check the TAAR first and model the income alternative. The statutory hook is TCGA 1992 ss.169H to 169S.