BADR on exit: don’t let the paperwork undo the deal

Business Asset Disposal Relief (BADR) can still make a meaningful difference on an exit. For disposals from 6 April 2026, qualifying gains are taxed at 18% rather than the higher main capital gains tax rate of 24%, although the relief is capped at a lifetime limit of £1 million of qualifying gains.

A recent First-tier Tribunal decision is a reminder that BADR can turn on a very practical point: whether the rights attached to the shares were properly created, recorded and reflected in the company’s paperwork.

What happened?

In Katarina Poznic v HMRC [2026] UKFTT 01298 (TC), the taxpayer sold ‘B’ ordinary shares and claimed BADR. She understood those shares had the same rights as the founder’s shares, including voting rights. The paperwork said otherwise: the SH01 form recorded no voting rights, Companies House filings showed the founder holding more than 75% of the votes, and there was no clear evidence that the taxpayer had exercised voting rights.

The tribunal dismissed the appeal. The point was simple: if a shareholder cannot show that their shares carried at least 5% of the voting rights for the required period, BADR will not be available.

Why this matters

BADR is valuable, but the conditions are strict. For share disposals, one key requirement is that the company must be the shareholder’s 'personal company'. Broadly, this means the shareholder must hold at least 5% of the ordinary share capital and be able to exercise at least 5% of the voting rights.

That is not just a commercial question. A valuable economic stake, or an understanding among shareholders, will not be enough if the voting rights do not legally exist or cannot be proved from the company’s records.

Where problems often arise

This is a common risk in private companies where share classes have been added or changed over time. Articles may not have been fully updated, resolutions may be missing, or Companies House forms may have been completed using standard wording that does not match what the shareholders intended.

Those issues can be difficult to fix once a sale is underway. A cap table may show who owns the shares economically, but the BADR question usually requires a closer look at the articles, shareholder approvals, register of members and Companies House filings.

Why intention may not be enough

The tribunal looked at what the records showed as a matter of law. Where a separate class of shares has been created, the rights attaching to that class need to be clearly documented. Informal understandings are unlikely to be enough if the company law steps were not taken and recorded.

Practical steps

Before a sale, shareholders should check that the articles, share issue documents, board and shareholder resolutions, register of members and Companies House filings all tell the same story. Where voting rights matter, there should also be evidence of how those rights have worked in practice.

Can problems be fixed?

Some issues can be fixed for the future, for example by amending the articles or passing resolutions to clarify share rights. Timing is critical: BADR generally requires the conditions to be met throughout the two years ending with the sale.

Trying to fix the position after the event is much harder. A court may be able to correct the register in some cases, but a later correction will not necessarily create voting rights that did not previously exist, or repair a failed BADR claim.

Key takeaway

The takeaway is straightforward: do not leave the BADR review until completion is in sight. Founders, management teams and family companies should check share rights early, particularly where share classes have changed over time.

The key question is not only what everyone intended, or what the deal says. It is what the company’s articles, resolutions, register and filings can prove. Getting that right before a transaction may preserve a valuable relief and avoid difficult conversations later.