For business owners considering a sale or exit from their company, the forthcoming changes to Business Asset Disposal Relief (BADR) will be of importance and will increase the tax you will pay on any capital gains.

What is Business Asset Disposal Relief?

BADR allows qualifying business owners to pay a reduced rate of Capital Gains Tax (CGT) on the disposal of business assets or shares in a trading company. The relief currently applies up to a lifetime limit of £1 million per individual.

Gains above this limit are taxed at the standard higher-rate CGT of 24 per cent.

What are the changes to BADR?

In April 2025, we saw the BADR rate on qualifying gains increase to 14 per cent, up from 10 per cent. In April 2026, we will see a further increase to 18 per cent.

To put that rise into perspective, if you sold your shares and made a gain of £1m, before 6 April 2026, your tax bill would be £140,000.  A sale after this date will result in a £180,000 bill.

BADR eligibility

To qualify for BADR, there are some detailed conditions that must be met, however, for a company shareholder, the following must apply for at least two years up to the point your business is sold:

  • You must have held at least five per cent of the shares, including an entitlement to five per cent of the profits, votes and sales proceeds
  • You must have been a director, company secretary or employee
  • The company must be a trading company
  • You have owned the business for at least two years

For further information on eligibility criteria, visit Business Asset Disposal Relief: Eligibility – GOV.UK.

Structuring your sale

There are various structures which can be used when planning an exit, all of which will lead to capital gains tax treatment applying.

Three of the more common routes include a Company Purchase of Own Shares, Management Buyouts (MBO) and a sale to an Employee Ownership Trust (EOT).

A Purchase of Own Shares involves the company repurchasing and then cancelling your shares.  This can be a cost-effective route, although there are some important restrictions on retaining a shareholding, the timing of payments and the use of deferred consideration.

MBOs transfer ownership to the management team, providing continuity but requiring careful attention to funding and tax timing.

This type of structure allows the company’s future profits to be used to pay out the exiting shareholder and can be very flexible.

A sale to an EOT can be highly tax effective and involves the establishment of a trust, set up for the benefit of company employees to acquire your shares.

For companies sold to an EOT now, 50 per cent of the gain is capital gains tax free.  The remaining 50 per cent is chargeable to CGT at normal rates of 18 per cent and 24 per cent.

This is a long-term strategy and suitable for companies who value long term employee ownership and engagement.

All of these routes offer an alternative to the sale of the business to a third party, which should always be considered.

Next steps for business owners

It is never too early to consider what steps could be taken to allow you to sell your business successfully in the future.

Ensuring that the business can continue operating effectively without you is likely to be a key first step.

Developing a capable management team is likely to be attractive to potential buyers, as well as keeping the door open for any of the exit routes highlighted above.

Considering the company valuation now and what steps could be taken to improve the valuation is also likely to be of importance.

You should also consider what shape a potential exit could take and when key members of the team should be brought into any discussions.

From a tax perspective, it is worth considering whether a financial separation of trading vs non-trading assets will boost BADR eligibility and whether shareholdings are suitably arranged.

If both spouses work within a company, two BADR allowances of £1m each could be claimed. If other family members are involved, that could potentially be extended further – remembering that they must have met all qualifying conditions for two complete years.

Finally, forecast your tax exposure to understand the financial impact it will have on your retirement.

Speak to our team to discuss any aspect of exit planning, including valuations, tax structuring or the possibility of a business sale to a third-party purchaser.