Company owners considering a sale urged to act now ahead of tax increases
Business owners planning to sell their companies are being urged to review their structures and act promptly, as rising Capital Gains Tax (CGT) rates are set to significantly increase the tax cost of a sale.
The CGT rate applying to disposals of trading company shares has already risen, and from April 2026 the rate where Business Asset Disposal Relief (BADR) applies will climb further. For many, this could mean a substantially higher tax bill unless action is taken in advance. With early action, there are legitimate methods that could be implemented to lessen the impact of tax rises.
A changing relief landscape
Entrepreneurs’ tax relief (ER) was introduced from the 2008/09 tax year as an incentive for people to establish and grow businesses in the UK by reducing the rate of Capital Gains Tax (CGT) on qualifying disposals. Under ER, qualifying individuals benefitted from a reduced CGT of 10% when disposing of shares in their personal trading companies, as opposed to the standard 18%, or higher rate of 28%.
The scheme underwent considerable changes and in 2018 was renamed Business Asset Disposal Relief (BADR); the conditions were tightened and the life time allowance was reduced from £10m to £1m.
For many years, there was a 10% effective rate of Capital Gains Tax that owner managers could benefit from on sale/retirement, but this ended on 5 April 2025, when the rate increased to 14% with the main rate of CGT having increased to 24% from 30 October 2024.
However, from next April, the rate of tax where BADR applies will be 18%.
In less than 10 years, the CGT payable on £2m of qualifying gains has more than doubled – significantly reducing the net proceeds an individual might expect to have access to.
Shareholders need to be thinking about their options well in advance of any sale.
Who should be considering their options?
Those most likely to benefit from early planning and specialist advice include:
- Shareholders of trading companies who are likely to sell within the next 1-5 years
- People with shareholdings worth more than £1m, or more than they want to spend in their lifetime
- People who have family members they may want to benefit from the sale proceeds
The impact on ownership structures
BADR has been a factor that has influenced how company ownership is structured. People have kept companies outside of a group structure so they can sell them separately, they have given 5% of the shares in their companies to spouses and, in some cases, other family members.
People with valuable companies need to determine whether their company structure still works for them given these changes, particularly if their shareholdings are worth more than £1m and more than they would want/need to spend.
We’re here to help
There are options that could now benefit owners of trading companies more than ever before, such as having a holding company giving flexibility as to whether to sell the holding company or trading subsidiaries. As well as providing opportunities to reduce the tax payable on a sale, there may also be inheritance tax and commercial benefits, and we would urge anyone in this position to seek comprehensive professional advice.
To discuss your situation, get in touch with a member of our specialist team today.
