Business Asset Disposal Relief on Farmland: When a Land Sale Qualifies

Business Asset Disposal Relief, often shortened to BADR, is a lower rate of Capital Gains Tax on certain business disposals. HMRC's manual records that Finance Act 2020 renamed it from 6 April 2020; before then it was entrepreneurs' relief.

The relief only applies to what the law calls a material disposal of business assets. Section 169I of the Taxation of Chargeable Gains Act 1992 lists three kinds that can count for an individual: the whole or part of a business, assets in use when a business stops, and shares. Section 169K adds a fourth, the associated disposal, for land a farming partnership or company uses but one of its members owns.

The question a farmer asks is nearly always the second row: I am selling a field and will go on farming, does the sale qualify? Our general guide to tax when selling land for development covers the ordinary Capital Gains Tax rates and how a gain is worked out, so they are not repeated here.

The rate has risen in two steps. HMRC's helpsheet HS275 for the 2025/26 tax year gives 14% for qualifying gains on disposals from 6 April 2025, and adds that the rate rises to 18% if you make a disposal on or after 6 April 2026. Accountants Armstrong Watson, writing for farm businesses in December 2024, set out the same steps: up to 14% on 6 April 2025 and again to 18% on 6 April 2026.

The £1 Million Lifetime Limit

The relief has a cap. For disposals on or after 11 March 2020, HS275 sets the lifetime limit at £1 million of gains for each individual. It is a lifetime total, not a yearly one: every earlier claim, whether it was made under the old name or the new one, uses up part of it. Gains above whatever is left are taxed at the ordinary rates. Husband and wife, or two partners in a farming partnership, each have their own £1 million if each meets the conditions.

Why the Saving Is Smaller Than It Used to Be

From 6 April 2026 the BADR rate and the ordinary lower rate are both 18%. The relief therefore helps only with gains that would otherwise be taxed at 24%. GOV.UK also sets an order for using the basic rate band: use your basic rate band first against any gains eligible for Business Asset Disposal Relief, and other gains use what is left. A qualifying gain therefore takes up the band before any other gain can, which can push a second, non-qualifying gain in the same year into 24%.

Put together, the most the relief can save one person on disposals from 6 April 2026 is 6% of £1 million, or £60,000. Armstrong Watson worked through the same arithmetic for a farmer planning a retirement sale with a £1 million gain: the bill rose by £40,000 in April 2025 and by another £40,000 in April 2026.

The wording of the relief is the same wording Parliament used for the older retirement relief, and HMRC's manual says the courts would regard the retirement relief cases as persuasive. Most of those cases are about farmers who sold land, and HMRC applies them to farming sales today.

In McGregor v Adcock, HMRC's account is short: there was no disposal of any part of that business and relief was not due. The planning permission did not turn the sale into anything more than a sale of land.

A Smaller Farm Is Not a Sold Part of a Farm

The case most like the letters landowners receive today is Russell. The tribunal applied the long-standing test of whether the seller has sold a bundle, meaning a working part of the business, or just some of its sticks. The Solicitors Journal's report of the decision drew the lesson that the resulting loss of profit from the sale of a farm business asset will not alone get the taxpayer home. It also records that the plan to build on the land was held not to be material. A buyer's intentions for the field do not change what the farmer has sold.

HMRC's manual draws the threads together. A simple scaling down of activities was not enough in Adcock, Dancer or Johnston. To count, the consequences of the disposal must affect the business directly and immediately, as Mr Powell's case showed: a business carrying on, even on a far less certain footing, was not enough. Separate sales in different tax years cannot be added together to make a part of a business that neither sale was on its own.

What about selling nearly all the land? In Adcock the judge, Fox J, accepted that a sale of most of a farm's land might in principle be a disposal of part of the business. In the later Dancer case, Peter Gibson J stressed, in words HMRC's manual quotes, that Fox J was using the language of possibility, not certainty, even in a case relating to the disposal of 95 per cent of the land on a farm. Size helps, but it does not settle the question.

Jarmin v Rawlings is the farming case where the relief was given, and the facts show what makes the difference. Mr Rawlings did not simply sell buildings. He sold the milking parlour, yard and storage barn, and dairying stopped when the sale completed. What remained was a different kind of farming. The court accepted that the sale and the end of milking, taken together, were the disposal of his dairy business.

Set against Pepper v Daffurn and Wase v Bourke, a pattern appears.

• The activity has to go at the same time as the asset. In Wase v Bourke a farmer sold his dairy herd and later sold his milk quota. The quota sale was not part of giving up dairying, which had already happened when the herd went.
• An asset left over after a change is surplus. In Pepper v Daffurn the farmer had already reorganised his farming before he sold the cattle yard, so the later sale was of an asset the business no longer needed.
• The business afterwards must be different, not just smaller. Fewer acres of the same farming, as in Adcock, Dancer, Johnston and Russell, is an asset sale.
• Separate sales are judged separately. HMRC's manual says a business, or a part of it, cannot be disposed of in stages, and that disposals in different tax years cannot be taken together. Assets sold at the same time can be looked at together.

This is why a sale of development land so rarely fits. A field sold for housing is usually one the farm can do without, and what remains is the same business on fewer acres. Relief has been allowed where a whole enterprise, such as the dairy, stopped with the sale.

This is the route that most often fits a retiring farmer. Section 169I(4) of the 1992 Act treats a disposal of assets after a business stops as a material disposal where the business was owned for the two years ending with the date it stopped, and that date is within the three years ending with the date of the disposal.

• The land must have been in use in the business on the day it stopped. HMRC's manual says the asset must have been in use for the purposes of the business at the date of cessation, and cannot be an investment holding.
• The business must have been yours for two years before it stopped.
• The sale must follow within three years. HMRC calls this a statutory limit, and says it has no discretion to extend the period, whatever caused the delay.

The Date That Counts Is the Date of Disposal

The three years are measured to the date of disposal for Capital Gains Tax, not to the day the money arrives. For land sold under an option, the disposal happens when the option is exercised, under section 28 of the 1992 Act; our guide to conditional contracts explains that timing rule and how it differs between the two kinds of agreement. A farmer who stops farming before planning is decided needs to know which side of the three years exercise is likely to fall.

Keeping the Land in Use Until the Sale

Under our agreements you can farm it, graze it or let it on short arrangements and keep the income, right up to completion. That does not make any relief available: whether you qualify turns on your business and its history, and a sale while farming carries on is judged by the cases above. When and how a business stops is a decision for you and your accountant, with the full picture of the farm in front of you.

Many farms are run by a family partnership while the land is owned by one member personally, often the parent. The land is then not a partnership asset, and selling it is not a disposal of the partnership's business. Section 169K of the 1992 Act lets it qualify instead as an associated disposal, if four conditions are met.

Withdrawal is wider than it sounds. HMRC's manual on its meaning says that it is not necessary for the individual to reduce the amount of work which they may do for the business. One of its examples is a partner who reduces his share of the partnership's assets and passes the premises to his son while still working full time. The two disposals normally follow closely. The Act sets no time limit, and the manual accepts a gap of up to three years after the material disposal where the business carries on and the land has been used only for it in between.

Rent Cuts the Relief Back

The relief on an associated disposal is restricted where the land was not wholly a business asset. HMRC's manual on the restrictions lists four situations: land used in the business for only part of the time you owned it, only part of the land used, your own involvement covering only part of the period, and land available to the business only on payment of rent. For any period after 5 April 2008 in which the business paid rent for the land, only a just and reasonable amount of the gain qualifies, and the cut reflects how close the rent was to a full market rent. Where a full market rent was paid, the gain for that period gets no relief at all.

Rent paid by a family partnership to the partner who owns the land is common, and it is one of the first points an accountant will look at.

• Partnerships. Section 169I(8) treats the business of a partnership as owned by each partner, and a partner's disposal of all or part of their interest in the partnership's assets as a disposal of all or part of the business. The same part-of-a-business test applies: a partnership that sells a field and farms on is in the same position as Mr Russell's. Each partner who qualifies claims for their own share of the gain, against their own lifetime limit.
• A partner's own land. Land owned outside the partnership by one partner follows the associated disposal rules above, not the partnership rules.
• Family companies. Relief on company shares needs the company to be your personal company for the two years before the sale. GOV.UK sets out that you need at least 5% of the shares and voting rights, and at least 5% of the distributable profits and assets on a winding up, or of the proceeds if the company is sold. You must also be an employee or office holder, and the company's main activities must be trading rather than investment.
• Land owned by the company itself. Section 169I is written for an individual making a disposal. A company that sells a field pays Corporation Tax on its own gain, and there is no BADR for the company. Getting the money out to the family afterwards is a separate question for the accountant.
• A company that stops trading. GOV.UK says you can still qualify if you sell your shares within three years of the company stopping.

The relief follows the person and the business, not the land: two neighbours selling identical fields can be treated quite differently because of how each farm is owned and run.

HS275 is direct about it: assets held as investments are outside the relief. A field let on a farm business tenancy, or on an older agricultural tenancy, is earning rent, and the tenant is the one running the farming business on it. Selling it is a sale of an investment, however long it has been in the family.

Grazing licences sit on the line, as they do for rollover relief, and our rollover relief guide explains how HMRC decides who is really farming a field grazed by someone else.

For someone who has inherited farmland, the two-year rule is the first hurdle. The relief needs a business owned by you for two years, and inheriting land does not give you a business. Where an heir has taken on the farming and run it for two years, the position can be different. Our guide for people who have inherited farmland sets out the wider choices.

A farmer has farmed in hand as a sole trader for thirty years and has never claimed the relief before. On retirement the whole farming business is sold, land included, and the disposal falls in the 2026/27 tax year. Other income for the year uses up the whole basic rate band, so every pound of the gain is above it. The whole gain qualifies.

The same gain gives very different bills depending on what was sold and when.

Because each partner has a separate lifetime limit, a business owned by two qualifying people can bring £2 million of gains within the relief. Even so, the relief changes the bill at the margin rather than the decision to sell.

1. Work out which tax year the disposal falls in. For an unconditional contract this is the date of the contract; for a conditional contract, the date the condition is met; for an option, the date it is exercised. It is never simply the date you are paid.
2. Check the conditions with your accountant. Which route applies, the two-year tests, the date the business stopped if it has, and any rent paid for land used by a partnership or company.
3. Check how much of the £1 million is left. Every earlier claim counts against it, including entrepreneurs' relief claims made before 2020.
4. Claim in your Self Assessment return for the year of the disposal. Where that is not possible, HS275 explains that a claim can be made in writing to HMRC or on Section A of the claim form in the helpsheet.
5. Pay at the right rate. Qualifying gains use your basic rate band first, which your accountant will take into account for any other gains in the same year.

The Time Limit

The claim must be made on or before the first anniversary of the 31 January following the tax year in which the disposal is made. HS275's own illustration is that for disposals in 2025/26, a claim must therefore be made by 31 January 2028. The same rule puts the deadline for a disposal in 2026/27 at 31 January 2029.

If You Are Also Thinking About Rollover Relief

The two reliefs rarely work on the same pound of gain: a gain that is rolled over into new land is not chargeable now, so there is nothing for this relief to reduce. Our rollover relief guide sets out how the two interact, and which suits a farmer who means to keep farming.

These are the facts an accountant asks for first, and between them they show which route, if any, is open. Gather them at any stage; the land can be looked at in the meantime.

• Is the land farmed in hand by you, by your partnership, or by your own company, rather than let to someone else?
• Have you owned the farming business, or your share of it, for at least two years?
• Will the sale take a whole activity with it, such as the dairy or the entire farm, or will the farm carry on much as before on fewer acres?
• Have you stopped farming, or are you planning to? If so, on what date, and will the land be sold within three years of it?
• Is the land owned by one family member while a partnership or company farms it, and is that person stepping back from the business at the same time?
• Has the partnership or company paid rent for the land, and since when?
• Have you, or the person selling, claimed entrepreneurs' relief or BADR before, and how much of the £1 million is left?
• Is anything else being sold in the same tax year that would use up the basic rate band?

Whether the relief is available turns entirely on your own business and what happens to it. The buyer and the type of agreement play no part in it, and nothing in an option agreement with us makes a sale qualify or claims the relief for you. What our agreement does offer your accountant is a known number to plan around: a price fixed at the start, above the land's value today in its current use, paid on completion once planning permission has been secured, with milestones set out in the agreement. We contribute to the fees of your own solicitor and land agent, so it costs you nothing to get it done properly. The tax question and the planning question are separate, and a free desktop review of your land answers the second: the constraints, the access and how the council is likely to see it.