If you are planning to sell or exit your company, you need to be aware of a stricter interpretation of the qualifying conditions for Business Asset Disposal Relief (BADR).
BADR allows qualifying business owners to pay a reduced rate of Capital Gains Tax (CGT) on the disposal of business assets or shares. The relief currently applies up to a lifetime limit of £1 million.
Gains above this limit are taxed at the standard higher-rate CGT of 24 per cent.
However, HMRC is continuing to increase its scrutiny of this tax relief scheme and new reforms may soon affect the timing of a sale, the structure of your business and the tax you will pay on any gains.
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 £1 million, before 6 April 2026, your tax bill would be £140,000.
However, a sale after this date will soon result in a £180,000 CGT charge.
Who is eligible for BADR?
To qualify for BADR, the following must apply for at least two years up to the point your business is sold:
For further information on eligibility criteria, visit Business Asset Disposal Relief: Eligibility – GOV.UK.
Time to structure your sale
When looking to exit a business, two of the increasingly common tax-efficient methods chosen by owners are Management Buyouts (MBO) and Employee Ownership Trusts (EOT).
EOTs can reward key employees while maintaining business continuity, though CGT relief is now limited to 50 per cent of the gain.
MBOs transfer ownership to the management team, providing continuity but requiring careful attention to funding and tax timing.
Here to help with your business sale
When preparing to exit your business, you should start by considering shareholders goals, the structure of the disposal and whether a phased exit might benefit your tax position.
Once this is down, you should review shareholdings and employee or director roles to ensure they meet the criteria.
You should also consider whether financial separation of non-trading assets will boost BADR eligibility.
At this stage, working with a tax adviser, you can start to assess the impact of the exit on your tax bill.
