Entrepreneurs' Relief UK US Business Owner Guide 2026 |

Why US Founders in the UK Should Care About This

The exit conversation usually comes up two years before the actual sale. A US founder who built a UK consulting business or a UK SaaS company over five or seven years starts hearing from buyers. Their UK accountant mentions Entrepreneurs' Relief (which has actually been renamed Business Asset Disposal Relief since 6 April 2020). Their US accountant in New York has never heard of it. Neither of them looks at the cross-border picture together.

This guide walks through how the entrepreneurs' relief UK-US business owner framework works in 2026, what the rate changes mean for sales completing this tax year and next, and the specific planning moves that protect the relief across both sides of the Atlantic. For broader US-UK guidance, see our US-UK cross-border tax advisory service.

What Entrepreneurs' Relief (BADR) Actually Means in 2026

On April 6, 2020, Entrepreneurs' Relief changed its name to Business Asset Disposal Relief. Sections 169H through 169S of the Taxation of Chargeable Gains Act of 1992 contain the legislation. The relief reduces UK Capital Gains Tax on qualifying business disposals to a special rate, with a lifetime cap of £1 million of qualifying gains per individual.

The rates have moved over the past two years. For disposals in the 2024-25 tax year, BADR applied at a rate of 10 percent. From 6 April 2025, BADR rises to 14 percent for the 2025-26 tax year, and from 6 April 2026, BADR rises again to 18 percent. The standard CGT rates for higher-rate filers stayed at 24 percent for residential property gains and rose from 20 percent to 24 percent for other gains under FA 2024, with effect from 30 October 2024.

For a UK higher-rate taxpayer, BADR at 14 percent in 2025-26 saves 10 percentage points compared to the standard 24 percent rate. On a £1 million qualifying gain, that is £100,000 of UK CGT saved by properly claiming the relief. The HMRC BADR guidance sits at https://www.gov.uk/business-asset-disposal-relief.

The qualifying conditions matter as much as the rate. The disposal has to be one of three types: a disposal of the whole or part of a business carried on by a sole trader or partnership, a disposal of shares in a "personal company" where the seller holds at least 5 percent of ordinary shares and voting rights, or a disposal of assets associated with a withdrawal from a qualifying business. The 24-month holding period applies in all cases — the qualifying conditions must have been met for the 24 months ending with the disposal date.

The £1 million lifetime cap was reduced from £10 million in March 2020. Once you have used your lifetime allowance, no further BADR is available on any future disposal.

What Changed for 2026

Three developments matter for cross-border business owners in 2026.

First, the rate increases are scheduled and confirmed. BADR at 14 percent for 2025-26, rising to 18 percent for 2026-27. A disposal that completes before 6 April 2026 is subject to the 14 percent rate. A disposal that slips into the 2026-27 tax year is subject to the 18 percent rate. The four-percentage-point difference on a £1 million gain is £40,000 of UK CGT — meaningful enough to drive completion timing decisions for many sellers.

Second, the standard CGT main rate moved to 24 percent under FA 2024 from 30 October 2024, so the gap between the BADR rate and the main rate has narrowed from 14 percentage points (in the 10 percent era) to 10 points in 2025-26 and 6 points from 2026-27 onwards. BADR still beats the standard rate, but the savings per qualifying pound have shrunk.

Third, on the US side, the IRS has stepped up cross-border information collection through the Common Reporting Standard and bilateral data exchange. UK CGT returns filed by US persons now appear in IRS data feeds. HMRC's CGT guidance is available at https://www.gov.uk/capital-gains-tax. For a broader cross-border context, see our US-UK Treaty advisory service.

Can a US Business Owner Actually Claim BADR

Subtopic A: UK Tax Residence Sits at the Center

BADR is a UK Capital Gains Tax relief, and UK CGT applies to UK-resident individuals on worldwide gains. A US citizen who is also UK tax-resident and disposes of qualifying UK business assets can claim BADR on the UK side just like any other UK-resident seller. The claim is made on the UK Self Assessment return by 31 January following the end of the tax year of disposal.

The Statutory Residence Test under FA 2013 Schedule 45 decides UK residence. A US person who has lived in the UK for at least 2 of the previous 3 tax years, has the UK as their only home, or spends 183 or more UK days in the tax year of disposal, is UK-resident. BADR remains available regardless of US citizenship as long as the UK-side conditions are met.

For a US-resident American who never moved to the UK, the position is different. UK CGT only applies to non-residents on gains attributable to UK land and to certain UK-resident close company shares. A US-resident American selling shares in a UK Limited company they founded but moved away from generally faces no UK CGT at all (subject to the temporary non-residence rules under FA 2013 Schedule 45) and therefore does not need BADR.

Subtopic B: The Personal Company Test

For share disposals, the seller must hold a "personal company" stake throughout the 24-month qualifying period. Personal company means at least 5 percent of ordinary share capital, at least 5 percent of voting rights, and either at least 5 percent entitlement to distributable profits and assets on winding up, or the ability to receive at least 5 percent of disposal proceeds.

This catches many founders by surprise. Multiple rounds of dilution through SAFE notes, convertible loans, and Series A or B fundraising can drop a founder below 5 percent in voting rights or in economic entitlement, even when their nominal share count stays above the threshold. The HMRC manual on the personal company test sits at https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual.

The seller must also be a company officer (director or company secretary) or employee throughout the 24 months. A founder who stepped back from operational involvement but still holds their director title qualifies. A founder who resigned the directorship eighteen months before the sale and worked from a beach in Portugal does not.

Subtopic C: The Trading Company Requirement

The company being sold must be a "trading company" or the holding company of a trading group throughout the 24 months. A trading company carries on trading activities, and whose non-trading activities are not substantial. HMRC interprets "substantial" as more than 20 percent on indicators like turnover, asset base, expenses, time spent, or profits.

The trading test catches companies that have built up significant non-trading reserves (cash held as an investment rather than for trading purposes) or that have acquired investment property or unrelated minority shareholdings. Founders nearing an exit should clean up the balance sheet 30 to 36 months ahead of the planned sale date, not 30 days.

How to Plan a BADR Claim as a US Business Owner: Step by Step

Step 1 — Confirm UK tax residence for the year of disposal. Apply the Statutory Residence Test under FA 2013 Schedule 45. A UK-resident American claims BADR on the UK Self Assessment return. A US-resident American claims none because UK CGT generally does not apply to the disposal. The HMRC SRT guidance sits at https://www.gov.uk/government/publications/rdr3-statutory-residence-test-srt.

Step 2 — Check the 5 percent personal company test for share disposals. Run an up-to-date cap table analysis. Confirm 5 percent of ordinary share capital, 5 percent of voting rights, and 5 percent of either profit entitlement or disposal proceeds entitlement. Check for any preferred-share structures or shareholders' agreements that might dilute economic entitlement.

Step 3 — Confirm the 24-month qualifying period. Trace the qualifying conditions backward from the planned disposal date. The seller must have been an officer or employee for the full 24 months. The company must have been a trading company throughout. Any break in either condition resets the clock.

Step 4 — Stress-test the trading company's status. Review the latest statutory accounts. Identify any non-trading activities (investment property, surplus cash held as investment, minority shareholdings in unrelated companies). If non-trading activities approach 20 percent on any indicator, plan a clean-up well before the disposal date.

Step 5 — Time the disposal carefully. A disposal completed on or before 5 April 2026 captures BADR at 14 percent. A disposal completed on or after 6 April 2026 pays 18 percent. The disposal date for CGT is the contract date, not the completion date, so a contract signed by 5 April 2026 with completion shortly after still qualifies for the lower rate.

Step 6 — File the UK CGT return and claim BADR. Report the disposal and claim BADR on the UK Self Assessment return for the year of disposal, due 31 January following the end of the tax year. Property disposals also need a 60-day CGT report through the standalone CGT on the UK property portal, but business asset disposals report through the main Self Assessment return.

Step 7 — Coordinate the US-side reporting. Report the same disposal on US Form 1040 Schedule D and Form 8949. Long-term capital gains in the US apply at 0 percent, 15 percent, or 20 percent, depending on income level, with the 3.8 percent Net Investment Income Tax under IRC Section 1411 on top. Claim foreign tax credit for UK CGT paid using Form 1116 in the passive category basket. The IRS foreign tax credit guidance sits at https://www.irs.gov/individuals/international-taxpayers/foreign-tax-credit.

Worked Example: A UK-Resident American Sells His SaaS Business

A 42-year-old US citizen relocated to London in 2018 and founded a B2B SaaS business in 2019. He held 38 percent of the ordinary shares throughout, served as CEO, and the company built recurring revenue to roughly £4.8 million ARR by late 2025. A US private equity firm offered £18 million for the entire business in early 2026, with the founder's stake valued at approximately £6.84 million.

He met every BADR condition—UK tax-resident since 2018 by the only-home automatic test under the SRT. Personal company test passed comfortably — 38 percent of voting rights and economic entitlement. Officer and employee throughout the 24-month qualifying period as CEO and director—trading company throughout — pure SaaS revenue with no non-trading reserves above 5 percent of total activity.

We modeled three timing scenarios. Scenario one: contracts exchange and complete by 31 March 2026, locking in BADR at 14 percent on the first £1 million of his gain. Scenario two: contracts slip to 10 April 2026, pushing the whole transaction into the 2026-27 tax year and BADR at 18 percent. Scenario three: contracts exchanged on 31 March 2026 with completion on 30 April 2026, capturing 14 percent BADR under the contract date rule in TCGA 1992 Section 28.

The maths broke down as follows on his £6.84 million gross gain (assuming negligible base cost). Scenario one applied BADR at 14 percent to the first £1 million (£140,000 UK CGT) and standard CGT at 24 percent to the remaining £5.84 million (£1,401,600 UK CGT), totaling £1,541,600 of UK CGT. Scenario two applied BADR at 18 percent to the first £1 million (£180,000) and standard CGT at 24 percent to the remaining £5.84 million (£1,401,600), totaling £1,581,600. The £40,000 difference was entirely due to the change in the BADR rate between tax years.

On the US side, his US federal long-term capital gains tax at 20 percent plus 3.8 percent NIIT on the full £6.84 million (converted to USD at completion date) came to roughly $1,930,000. Form 1116 foreign tax credit absorbed the UK CGT paid against the US federal tax on the same gain, netting the US position to approximately $390,000 of incremental US federal tax owed after credit relief.

The case shows the two cross-border realities that catch most US founders. BADR rate timing matters in pounds; foreign tax credit eligibility matters in dollars; and the two sides have to be lined up before contracts are signed, rather than after.

Common Mistakes US Business Owners Make

Assuming Entrepreneurs' Relief still exists at 10 percent. The relief was renamed BADR on 6 April 2020, and the rate has moved from 10 percent (pre-April 2025) to 14 percent (2025-26) to 18 percent (from April 2026). Articles, advisers, and online calculators that quote 10 percent are outdated. Always check the rate for the actual disposal date.

Missing the 24-month holding period by a few days. A founder who plans an exit 22 months after a share reorganization that resets the personal company test loses all BADR. The 24-month clock is unforgiving. Plan disposals around the qualifying period, not the other way around.

Falling below 5 percent through dilution. Founders who accept a Series B at a 4.8 percent retained shareholding may have lost personal company status without realizing it. Run a cap table check immediately before signing any termsheet that involves dilution. The HMRC capital gains manual sits at https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual.

Ignoring the trading company test. A holding company with a substantial investment portfolio, surplus cash held long-term as an investment, or a non-trading subsidiary fails the trading test even if the operating company underneath is purely trading. Clean the structure well before the disposal date.

Forgetting the US Form 1116 foreign tax credit basket rules. UK CGT on a business sale is treated as passive income on Form 1116 for most cross-border sellers. Placing it in the general category basket creates a mismatch with the US-source category of the underlying gain, either disallowing the credit or wasting carry-forward capacity. The IRS Form 1116 guidance sits at https://www.irs.gov/forms-pubs/about-form-1116.

Treating the contract date and completion date as the same. UK CGT recognizes the gain on the contract date under TCGA 1992 Section 28, not the completion date. A contract signed before 6 April, with completion shortly after, still falls within the earlier tax year. Cross-border deals often use this rule to lock in the better BADR rate even when completion mechanics drag on.

How US-UK Tax Helps US Business Owners Plan a BADR Exit

Our team holds CTA credentials with the Chartered Institute of Taxation and Enrolled Agent status with the IRS, which means the same advisers run the UK BADR analysis, the US Form 1040 foreign tax credit modeling, and the Treaty Article 13 positioning. That coordination matters because a UK BADR claim that ignores the US side typically leaves 4-8 percent of the gross sale proceeds on the table in unrelieved foreign tax credit or NIIT exposure.

A typical engagement runs three phases. Phase one is the pre-exit review — confirm UK residence, run the cap table analysis against the personal company test, audit the trading company status, identify any clean-up needed, and project the comparative tax position across multiple disposal timings. Phase two is the disposal itself — contract review for the BADR-relevant clauses, analysis of contract date versus completion date for rate-lock purposes, and coordination with the UK and US transaction lawyers. Phase three is the filings — UK Self Assessment with the BADR claim, US Form 1040 Schedule D, Form 8949, Form 1116 foreign tax credit calculation in the passive category basket, and any treaty Article 13 disclosure. The CIOT directory sits at https://www.tax.org.uk/.

For broader cross-border guidance, see our US-UK Treaty advisory service and our US expat tax filing requirements. Get in touch with our team today at or visit https://www.us-uktax.com/ to discuss your exit plan.

Conclusion

Three points to take away. First, BADR rates rise from 14 percent to 18 percent on 6 April 2026, so disposals contracted by 5 April 2026 lock in the lower rate even where completion slips into the following tax year. Plan completion timing around the contract date rule, not the bank transfer's calendar date. Second, the qualifying conditions — 24-month holding period, 5 percent personal company test, officer or employee status, trading company throughout — require a cap table and trading-status audit at least 30 months before any planned exit. Founders who only check three months out usually find a problem they cannot fix. Third, the US side needs to be modeled alongside the UK side, because UK CGT paid on a BADR sale generates foreign tax credit relief on the US return only if it is reported correctly in the passive category basket on Form 1116. The entrepreneurs' relief UK-US business owner framework rewards 30-month planning and punishes 30-day decisions. Talk to us at .

Frequently Asked Questions

Q: Can a US citizen claim Entrepreneurs' Relief in the UK?

A: Yes, if the US citizen is also a UK tax-resident and meets the qualifying conditions for Business Asset Disposal Relief (the current name for Entrepreneurs' Relief). UK CGT applies to UK-resident individuals on worldwide gains, and BADR is available regardless of citizenship as long as the 24-month holding period, 5 percent personal company test, officer or employee status, and trading company conditions are all satisfied. The claim must be made on the UK Self Assessment return by 31 January following the end of the tax year of disposal.

Q: What is the Business Asset Disposal Relief rate for 2025-26 and 2026-27?

A: BADR applies at 14 percent for disposals in the 2025-26 UK tax year (6 April 2025 to 5 April 2026) and rises to 18 percent for the 2026-27 tax year (from 6 April 2026 onwards). The lifetime cap remains at £1 million of qualifying gains per individual. A disposal contracted on or before 5 April 2026 locks in the 14 percent rate under the TCGA 1992 Section 28 contract date rule, even where completion happens shortly afterward.

Q: Do I get foreign tax credit on the US side for UK BADR tax paid?

A: Yes, UK Capital Gains Tax paid on a BADR-relieved disposal generates foreign tax credit on the US side under IRC Section 901—the credit reports on Form 1116 in the passive category basket are for most cross-border sellers. Because BADR reduces the UK CGT paid (compared to the standard 24 percent rate), the available foreign tax credit is also smaller, leaving residual US federal CGT exposure that the higher UK rate would have absorbed.

Q: What is the 5 percent personal company test?

A: The personal company test requires the seller to hold at least 5 percent of the ordinary share capital, at least 5 percent of the voting rights, and either at least 5 percent of the entitlement to distributable profits and assets on winding up or at least 5 percent of the entitlement to disposal proceeds. Founders who have been diluted through multiple funding rounds need a careful cap table check because dilution to 4.8 percent ordinary shares fails the test entirely. The HMRC manual sits at https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual.

Q: Do I need to be a director to claim BADR?

A: You need to be either an officer (director or company secretary) or an employee of the company throughout the 24-month qualifying period ending with the disposal date. A founder who stepped back from day-to-day operations but kept a non-executive director role still qualifies. A founder who resigned the directorship more than 24 months before the disposal date generally does not, unless they remained an employee throughout.

Q: How does the 24-month holding period work?

A: The qualifying conditions must have been met for the 24 months ending with the disposal date. That covers the 5 percent personal company test, officer or employee status, and the business being sold's trading company status. Any break, under any condition, during the 24 months — even a short break — resets the clock. Plan share reorganizations, restructurings, and changes to director roles well outside the 24-month window before any planned exit.

Q: What is a trading company for BADR purposes?

A: A trading company carries on trading activities, and whose non-trading activities are not substantial. HMRC treats "substantial" as more than 20 percent based on indicators such as turnover, asset base, expenses, time spent, or profits. Companies with significant non-trading reserves held as investments, investment property, or non-trading subsidiaries can fail the test. The cure is usually to clean the balance sheet 30 to 36 months ahead of the planned disposal.

Q: Can US-UK Tax handle my UK business exit and US filings together?

A: Yes, our typical exit engagement covers the UK BADR analysis, the cap table review against the personal company test, the trading company audit, the contract date and completion date timing analysis, the UK Self Assessment BADR claim, and the US Form 1040 Schedule D plus Form 1116 foreign tax credit calculation. Engagement fees for a full exit support typically range from £6,500 to £25,000, depending on deal size and complexity. Contact to discuss your situation.