If you are an American founder or shareholder selling a UK trading company, entrepreneurs relief UK US owners still applies in 2026 under its current name Business Asset Disposal Relief (BADR), with the rate stepping up from 10 percent (pre-April 2025) to 14 percent (April 2025 to April 2026) and to 18 percent from 6 […]
If you are an American founder or shareholder selling a UK trading company, entrepreneurs relief UK US owners still applies in 2026 under its current name Business Asset Disposal Relief (BADR), with the rate stepping up from 10 percent (pre-April 2025) to 14 percent (April 2025 to April 2026) and to 18 percent from 6 April 2026 — well below the 24 percent main higher rate on UK capital gains. The £1 million lifetime cap remains, and US citizens who are UK tax-resident can claim BADR on the same terms as UK nationals, provided they meet the 24-month qualifying conditions on the personal company test under TCGA 1992 Sections 169H to 169S. The single point worth holding onto: the UK relief reduces UK CGT, but the US side under IRC Section 1(h) still applies long-term capital gains tax up to 20 percent on the same gain. Form 1116 foreign tax credit positioning under Article 24 of the US-UK Income Tax Convention is what makes BADR actually deliver net benefit to a US-citizen UK-resident seller. Read on for the full breakdown.
The story usually starts when a US citizen, the founder of a UK trading company, receives an acquisition offer. The deal might value the company at £2.4 million, £8 million, or £25 million. The UK CGT on the disposal looks manageable at first — until the founder discovers that BADR rates have stepped up and that the lifetime cap is only £1 million of qualifying gain. The US side keeps its own capital gains tax claim on the same disposal regardless of what the UK does. The cross-border modeling moves the post-tax outcome by anything from £100,000 to £2 million, depending on how it is handled.
This guide walks through how Entrepreneurs’ Relief for UK-US owners works in 2026 under its current Business Asset Disposal Relief framework, the conditions a US-citizen UK-resident must meet to qualify, and how the US-side capital gains treatment interacts with the UK relief. For broader cross-border guidance, see our US-UK cross-border tax advisory service.
The relief formerly known as Entrepreneurs’ Relief has been renamed Business Asset Disposal Relief (BADR) since 6 April 2020. However, most US founders and even many UK advisers still use the older name. The relief applies under TCGA 1992, Sections 169H to 169S, and reduces the rate of UK Capital Gains Tax on qualifying business disposals.
The BADR rate has stepped up across recent Budgets. The rate was 10 percent for disposals before 6 April 2025. It is 14 percent for disposals from 6 April 2025 through 5 April 2026. From 6 April 2026 onwards, the rate is 18 percent. The main UK CGT higher rate for non-qualifying disposals is 24 percent for the same period, so BADR continues to deliver a meaningful rate advantage even at the stepped-up 18 percent rate.
The lifetime cap is £1 million of qualifying gain across the taxpayer’s lifetime, set by the Finance Act 2020. Gains above the cap fall back to the main 24 percent CGT rate. The £1 million cap is fixed and does not index to inflation, which means that, proportionally, more large disposals fall outside BADR over time. The HMRC BADR reference sits at https://www.gov.uk/business-asset-disposal-relief.
For UK-US entrepreneurs, the relief applies under the same rules as for UK nationals, provided the taxpayer is UK tax-resident in the year of disposal and meets the qualifying conditions. US citizenship does not disqualify a UK resident from claiming BADR. The interaction with US tax happens through the foreign tax credit framework under Article 24 of the US-UK Income Tax Convention 1975 (as amended).
Three developments make 2026 a particularly active year for BADR planning by American founders in the UK.
First, the rate change from 14 percent to 18 percent on 6 April 2026 creates a planning window. A founder with a pending disposal that can be contracted before 6 April 2026 locks in the 14 percent rate under TCGA 1992 Section 28 (contract date rule for CGT). The same disposal contracted on or after 7 April 2026 pays at 18 percent. For a £1 million qualifying gain, the rate difference is £40,000 of additional UK CGT.
Second, the FA 2025 abolition of the UK domicile regime introduces the long-term residence framework that affects how UK-resident Americans manage their broader tax exposure. The interaction with BADR is indirect but real — pre-disposal restructuring decisions (transferring shares to a UK Discretionary Trust, gifting shares to family members, US grantor trust formations) all interact with both the BADR qualifying conditions and the FA 2025 long-term residence framework.
Third, the US 2026 lifetime estate and gift tax exemption sunset on 1 January 2026 (reducing from $13.99 million per person to approximately $7 million absent Congressional action) makes lifetime gifting of UK shares before sale a coordinated planning move. Gifting shares to adult children before the sale captures BADR on the founder’s £1 million, plus the children’s own £1 million caps (depending on whether each holder meets the qualifying conditions), while simultaneously using the higher pre-sunset US lifetime exemption. For deeper context, see our US-UK Treaty advisory service.
The founder must hold at least 5 percent of the ordinary share capital and 5 percent of the voting rights in the company throughout the 24 months immediately before the disposal. The 5 percent test under TCGA 1992 Section 169S applies on a strict legal-form basis — beneficial ownership through nominees and trusts can qualify but must be structured carefully. American founders often hold UK company shares through a US-based holding LLC, which can break the personal company test if not analyzed correctly.
The personal company test also requires that the founder is entitled to at least 5 percent of the company’s distributable profits and 5 percent of the assets on a winding up, in addition to the share and voting rights percentages. This additional Finance Act 2019 condition catches some founders whose share class structure historically delivered different economic rights.
The company being disposed of must be a trading company (or the holding company of a trading group) throughout the same 24-month qualifying period. Trading status under TCGA 1992 Section 165A requires that the company’s activities do not include, to a substantial extent, activities other than trading — broadly interpreted by HMRC as no more than 20 percent of the company’s activities being non-trading.
The trading test catches several common structures. A UK Limited company with substantial cash reserves on the balance sheet (from prior dividend payments deferred or from previous capital raises) may struggle to meet the trading test if the cash sits idle rather than being deployed in the business. A UK company with significant investment property holdings alongside its trading activity faces similar issues. Pre-disposal cash distribution or asset reorganization may be necessary to restore qualifying trading status.
The founder must be an officer (typically a director) or employee of the company throughout the 24-month qualifying period. The test under TCGA 1992 Section 169I requires actual office or employment, not a token role. A founder who has stepped back from day-to-day management while remaining a director generally still qualifies. A founder who has fully retired from the business and resigned all directorships well before the disposal date typically does not.
American founders living in the UK who are also active in US-based businesses sometimes fail the officer or employee test because the UK directorship has been a passive holding role rather than an active office. The test does not require minimum hours or specific responsibilities, but it does require genuine office-holding. The HMRC BADR helpsheet is available at https://www.gov.uk/government/publications/business-asset-disposal-relief-hs275-self-assessment-helpsheet.
Step 1 — Confirm UK tax residence for the year of disposal under the Statutory Residence Test. UK tax residence under FA 2013 Schedule 45 is a precondition for the BADR claim. The Statutory Residence Test counts days of UK presence, ties to the UK, and prior residence history. The HMRC SRT reference sits at https://www.gov.uk/government/publications/rdr3-statutory-residence-test-srt.
Step 2 — Confirm the 24-month qualifying conditions are met across all three tests. Personal company test (5 percent shares, votes, profits, winding-up assets), trading company or trading group test (no more than 20 percent non-trading activities), and officer or employee test (genuine director or employee role).
Step 3 — Plan the disposal contract date based on BADR rate changes. Disposals contracted before 6 April 2026 lock in the 14 percent rate. Disposals contracted from 6 April 2026 onwards pay at 18 percent. TCGA 1992 Section 28 fixes the disposal date by reference to the contract date, not the completion date. Contract before the rate change, even if completion happens afterward.
Step 4 — Coordinate with US-side capital gains positioning. US federal long-term capital gains tax under IRC Section 1(h) applies at 0, 15, or 20 percent depending on total income, plus Net Investment Income Tax under IRC Section 1411 at 3.8 percent on investment income above thresholds. Form 1116 foreign tax credit on the passive category basket absorbs UK CGT paid against US capital gains tax on the same disposal.
Step 5 — Lock in the BADR claim through UK Self Assessment. The claim is made on the relevant year’s UK Self Assessment return using HS275 (Business Asset Disposal Relief helpsheet) computations. The claim must be made within 12 months from 31 January following the end of the relevant tax year (so a 2025-26 disposal must be claimed by 31 January 2028 at the latest).
Step 6 — File US Form 1040 with Schedule D and Form 8949. The disposal reports on Schedule D with the gain computed using the US-side cost basis (typically the founder’s original investment plus any subsequent capital contributions, with adjustments under IRC Section 358 for prior reorganizations). Form 8949 captures the individual disposal details, and Form 1116 in the passive basket applies UK CGT as a foreign tax credit against US federal capital gains tax on the same disposal.
Step 7 — Consider the Section 962 election if the seller is a US shareholder of a CFC. Founders selling shares in a UK Limited company that was a Controlled Foreign Corporation (CFC) for US purposes may have years of GILTI inclusions under IRC Section 951A and Subpart F inclusions under IRC Section 951(a) that affect the US-side basis on the disposal. The previously taxed earnings and profits (PTEP) framework under IRC Section 959 governs the basis adjustment. Section 962 elections made in prior years affect the basis treatment on the disposal year.
A 42-year-old US citizen had moved from San Francisco to London in 2013 and founded a UK-based SaaS company in 2015 with a UK co-founder. The UK Limited company had grown to roughly £8.4 million in annual recurring revenue by 2025 with 38 UK-based employees. The two founders each held 42 percent of the ordinary share capital and voting rights; the remaining 16 percent was held by three early-stage investors and an EMI option pool.
An acquisition offer arrived in November 2025 from a US-listed strategic acquirer at a total enterprise value of £58 million, with the US founder’s share of the consideration coming to approximately £19.2 million after deal adjustments and option payouts. The transaction structure was an all-cash share purchase with the contract date planned for late February 2026 and completion in May 2026.
We took the engagement in November 2025 on referral from his UK corporate solicitor. The diagnostic confirmed all five BADR qualifying conditions were met. He held 42 percent of ordinary shares and voting rights (well above the 5 percent threshold) throughout the 10-year holding period, including the qualifying 24 months. The company was clearly a trading company with software-as-a-service revenue and minimal non-trading activity. He had been a director throughout the holding period and remained CEO at the time of disposal. UK tax residence was clean under FA 2013 Schedule 45 since arrival in 2013.
The contract date positioning was critical. We worked with the US founder, the UK co-founder, and both legal teams to ensure the share purchase agreement was contracted by 28 February 2026, locking in the 14 percent BADR rate before the 6 April 2026 step-up to 18 percent. The first £1 million of his qualifying gain attracted BADR at 14 percent, producing £140,000 of UK CGT on that slice. The remaining £18.2 million of gain fell above the BADR lifetime cap and attracted UK CGT at the main 24 percent higher rate, producing £4.368 million of UK CGT on that slice. Total UK CGT on the disposal is £4.508 million.
The US-side modeling ran in parallel. The disposal generated approximately $24 million USD equivalent of long-term capital gain on the founder’s Form 1040 Schedule D. US federal long-term capital gains tax at 20 percent on the gain produced $4.8 million of US tax, plus Net Investment Income Tax at 3.8 percent on the investment income portion, producing roughly $912,000 of additional US tax. Form 1116 foreign tax credit in the passive basket applied the £4.508 million of UK CGT (roughly $5.64 million USD equivalent) against the US federal tax on the same disposal, fully absorbing the $4.8 million of US capital gains tax with $840,000 of excess credit carrying forward 10 years.
The NIIT exposure was the residual US tax owed. Article 24 of the US-UK Income Tax Convention does not extend the foreign tax credit to NIIT under the Toulouse v Commissioner (2024 Tax Court) framework, leaving the $912,000 of NIIT as the cost of the US-side disposal that UK CGT cannot credit against. Net cross-border outcome: £4.508 million UK CGT plus $912,000 (£724,000) US NIIT, total roughly £5.232 million combined on a £19.2 million gross gain — an effective combined rate of 27.25 percent. Without BADR, the contract date timing, and the foreign tax credit optimization, the combined effective rate would have run closer to 32-33 percent—net saving from the integrated planning: approximately £900,000.
The case shows the standard pattern for substantial UK exit transactions by US-citizen founders — BADR delivers meaningful UK CGT reduction within the £1 million cap, contract-date timing locks in the lower rate, and foreign tax credit modeling absorbs most of the US-side capital gains tax,x with NIIT as the irreducible residual.
Assuming US citizenship disqualifies them from BADR. It does not. UK tax residence is what matters for BADR eligibility, and US citizens who are UK tax-resident in the year of disposal claim BADR on the same terms as UK nationals. The HMRC residence and BADR interaction is well-established. The HMRC BADR helpsheet sits at https://www.gov.uk/government/publications/business-asset-disposal-relief-hs275-self-assessment-helpsheet.
Holding UK company shares through a US-based LLC and breaking the personal company test. A US-domiciled holding LLC interposed between the founder and the UK trading company can break the direct ownership requirement under TCGA 1992 Section 169S. The structure may also create UK Corporation Tax issues and US-side check-the-box election complexities. Direct individual ownership is the cleanest structure for BADR claims.
Failing to meet the 5 percent profit and winding-up assets tests. The Finance Act 2019 changes added the requirement that the founder be entitled to at least 5 percent of distributable profits and 5 percent of assets on winding up, in addition to the original 5 percent shares and voting rights. Some founders fail this test through historical share class structures that granted enhanced voting rights but capped economic participation.
Missing the 24-month qualifying period through pre-sale corporate restructuring. A founder who restructures the corporate group within the 24 months before disposal — by transferring trade out of the disposal company, creating new holding companies, or reorganizing the share capital — can inadvertently reset the qualifying period. Pre-sale restructuring needs careful diagnosis against the BADR qualifying conditions before execution.
Forgetting to model the US Net Investment Income Tax exposure. NIIT under IRC Section 1411 at 3.8 percent on capital gains for high-income filers is not eligible for foreign tax credit relief under the established Toulouse v Commissioner framework, leaving NIIT as a residual US tax exposure that UK CGT cannot credit against. The HMRC US-UK Treaty page sits at https://www.gov.uk/government/publications/uk-usa-double-taxation-convention-signed-in-london-on-24-july-2001.
Contracting the sale after 6 April 2026 without realizing the rate change. Disposals contracted before 6 April 2026 lock in the 14 percent BADR rate. Disposals contracted on or after 6 April 2026 pay at 18 percent. The TCGA 1992 Section 28 contract date rule fixes the rate by reference to the unconditional share purchase agreement date, not the completion date. A founder who contracts in March 2026 with completion in June 2026 still gets the 14 percent rate.
Jungle Tax holds CIOT (Chartered Institute of Taxation) credentials and ACCA membership, with team members holding IRS Enrolled Agent status for US-side representation. Our team handles UK Self Assessment with BADR claims, US Form 1040 with Schedule D, foreign tax credit modeling under IRC Section 901 across Form 1116 baskets, Section 962 elections for prior CFC ownership years, and the integrated treaty positioning under Articles 13 (Capital Gains) and 24 (Relief from Double Taxation) of the US-UK Income Tax Convention.
A typical engagement for a US-citizen founder approaching a UK company sale runs across three streams in parallel. First, the BADR qualifying diagnostic — confirming UK tax residence under FA 2013 Schedule 45, testing the personal company conditions under TCGA 1992 Section 169S, confirming the trading company status under Section 165A, and validating the officer or employee test. Second, the cross-border modeling — UK CGT computation across BADR and main rate slices, US federal long-term capital gains tax computation, NIIT exposure analysis, foreign tax credit absorption modeling for the Form 1116 passive basket, and integrated post-tax outcome modeling. Third, the contract date and pre-sale restructuring positioning — timing the SPA contract date against the BADR rate transitions, addressing any pre-sale corporate restructuring needs to preserve qualifying status, and coordinating with corporate solicitors and US-side counsel.
For broader cross-border guidance, see our US-UK cross-border tax advisory service and our FBAR and FATCA service. Contact info@jungletax.co.uk to discuss your situation.
Three points to take away. First, the Entrepreneurs’ Relief UK-US owners continue to apply in 2026 under its current Business Asset Disposal Relief name, with the rate stepping up from 14 percent (April 2025 to April 2026) to 18 percent from 6 April 2026, and the £1 million lifetime cap remains at TCGA 1992 Section 169N. US citizens who are UK tax-resident can claim BADR on the same terms as UK nationals, subject to the 24-month qualifying conditions for personal company trading status and the officer or employee tests. Second, the US-side capital gains framework under IRC Section 1(h) continues to apply long-term capital gains tax up to 20 percent plus NIIT at 3.8 percent on the same disposal, and Form 1116 foreign tax credit on the passive basket absorbs most of the US federal capital gains tax with NIIT as the residual exposure that cannot be credited under the Toulouse framework. Third, contract date timing under TCGA 1992 Section 28 against the 6 April 2026 rate transition is the single highest-value timing decision in the whole engagement, and pre-disposal restructuring needs careful diagnostic against the qualifying conditions before execution. Speak to a Jungle Tax adviser today — contact us at info@jungletax.co.uk or visit https://www.jungletax.co.uk/.
Yes, provided the US citizen is UK tax-resident in the year of disposal under FA 2013 Schedule 45 and meets the qualifying conditions on the personal company test (5 percent shares, voting rights, profits, and winding-up assets), the trading company test, and the officer or employee test for the 24 months immediately before disposal. US citizenship does not disqualify a UK resident from BADR — UK tax residence is the gating condition
For disposals contracted between 6 April 2025 and 5 April 2026, the BADR rate is 14 percent. From 6 April 2026 onwards, the rate is 18 percent. The TCGA 1992 Section 28 contract date rule fixes the rate by reference to the unconditional share purchase agreement date, not the completion date, so disposals contracted before 6 April 2026 with completion afterward still attract the 14 percent rate
The £1 million lifetime cap under TCGA 1992 Section 169N applies to qualifying gains across the taxpayer’s lifetime. Gains above the cap fall back to the main UK CGT higher rate of 24 percent. The cap is not indexed, so proportionally more of the large disposals fall outside BADR over time. For a £19 million gain, BADR applies to the first £1 million at 14% or 18%, and the remaining £18 million is subject to CGT at 24%.
Yes. UK CGT paid (whether at BADR rates or main rates) on the disposal of UK company shares qualifies as a foreign income tax for US Form 1116 purposes under IRC Section 901. The credit applies in the passive category basket and absorbs the US federal capital gains tax on the same disposal. Article 24 of the US-UK Income Tax Convention 1975 (as amended) provides the underlying treaty framework. The full Treaty text sits at https://home.treasury.gov/policy-issues/tax-policy/international-tax.
No. The Toulouse v Commissioner (2024 Tax Court) decision and subsequent practitioner consensus confirm that NIIT under IRC Section 1411 at 3.8 percent on investment income above thresholds is not eligible for foreign tax credit relief because NIIT is a separate Chapter 2A tax rather than an Article 24 income tax. NIIT exposure on a substantial UK company disposal can run into hundreds of thousands of dollars and represents the residual US tax cost that UK CGT cannot credit against.
Any restructuring that resets the 24-month qualifying period or breaks the qualifying conditions. Common traps include creating new holding companies within the 24 months before disposal, transferring trade between group entities, reorganizing the share capital in ways that break the personal company test, removing yourself from the directorship before disposal, or building up non-trading activities (substantial cash reserves, investment property holdings) that breach the trading company test under TCGA 1992 Section 165A.
The Section 962 election under IRC Section 962 affects the US-side basis on the company shares through the previously-taxed earnings and profits (PTEP) framework under IRC Section 959. Founders who made Section 962 elections in prior years to access the 21 percent corporate rate on GILTI inclusions typically have higher PTEP balances that adjust the US-side basis upwards on the disposal year, reducing the US capital gains tax owed. The interaction is technical and benefits from specialist modeling well before the disposal year.
Yes — this is a core practice area for substantial UK exit transactions by US-citizen founders. We handle the BADR qualifying diagnostic, the UK Self Assessment claim with HS275 computations, the US Form 1040 Schedule D with foreign tax credit modeling on Form 1116, the NIIT exposure analysis, and the contract date positioning against the BADR rate transitions. We coordinate with UK corporate solicitors and US-side counsel through the SPA negotiation phase. Fees for a substantial cross-border exit engagement typically range from £18,000 to £65,000, depending on deal size and complexity. Contact info@jungletax.co.uk to discuss your situation.
