For business owners preparing to sell or exit their company, a stricter interpretation of the qualifying conditions for Business Asset Disposal Relief (BADR) and increased scrutiny from HMRC will soon be introduced.
These changes may affect the timing of a sale, the structure of your business and the tax you will pay on any 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. 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.
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, the following must apply for at least two years up to the point your business is sold:
- You are a sole trader or business partner
- 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
Two common exit strategies 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.
Next steps for business owners
You can start by asking whether the current structure reflects a trading business, whether all shareholders are aligned and if phased disposal could improve the tax position.
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.
Finally, forecast your tax exposure to understand the financial impact it will have on your retirement.
Speak to our team today to confirm your BADR eligibility and ensure your tax liabilities are minimised.
