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 pay on any gains.
What is 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 CGT rate of 24 per cent.
What are the changes to BADR?
In April 2025, the BADR rate on qualifying gains increased to 14 per cent, up from 10 per cent.
In April 2026, this will further increase to 18 per cent.
To put this into perspective, if you sold your shares and made a gain of £1million, before 6 April 2026, your capital gains tax bill would be £140,000. A sale after this date will result in a £180,000 capital gains tax bill.
BADR eligibility
There are set criteria that must be met for capital gains arising on a business sale or closure to qualify for BADR.
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).
MBOs transfer business ownership to the management team, providing continuity but requiring careful attention to funding and tax timing.
EOTs can reward key employees while maintaining business continuity, though CGT relief will soon be limited to 50 per cent of the gain.
Next steps for business owners
Our recommended next steps for business owners are:
- Ask whether the structure meets the criteria for a trading business, whether all shareholders are aligned and if a phased disposal could improve the tax position.
- Review shareholdings and employee or director roles to ensure they meet the criteria.
- 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.
