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Business Services, Business Tax

Selling Your Business? The Rising Cost of Business Asset Disposal Relief and Planning Opportunities

RJP LLP By RJP LLP
Selling Your Business? The Rising Cost of Business Asset Disposal Relief and Planning Opportunities

Posted: 11 March 2026

For many entrepreneurs, Business Asset Disposal Relief (BADR) has long been a cornerstone of exit planning. By reducing the capital gains tax (CGT) rate on qualifying business disposals, it has helped reward those who have built and grown successful businesses. However, upcoming changes mean that the tax cost of selling a business is set to rise, making early planning more important than ever.

What is Business Asset Disposal Relief?

BADR (formerly Entrepreneurs’ Relief) allows individuals to pay a reduced rate of capital gains tax on qualifying business disposals, up to a lifetime limit of £1 million.

To qualify, broadly:

• The individual must hold at least 5% of the shares and voting rights in a trading company;
• They must be an officer or employee of the company;
• The shares must have been held for at least two years prior to disposal.

The relief typically applies to:

• Sales of shares in a personal trading company;
• Disposal of a sole trade or partnership business;
• Certain associated disposals of business assets.

For many owner-managers, BADR has been a key factor in determining the after-tax value of a business exit.

The Change: Higher CGT Rates from April 2026

From April 2026, the CGT rate applying to BADR-qualifying disposals is set to increase from 14% to 18%.

Although this still represents a preferential rate compared with the standard capital gains tax rate of 24%, it reduces the tax advantage of the relief and increases the overall tax cost of exiting a business.

Timing Considerations for Business Owners

With the increase approaching, business owners who are considering a sale or succession event may wish to review their timing.

Some questions to consider include:

• Is a sale already being contemplated in the next few years?
• Could a transaction realistically be accelerated?
• Are there shareholder or structural changes required before a sale?
• Will the business need time to prepare for due diligence or valuation?

In practice, bringing forward a sale is not always feasible. However, early discussions with advisers can help determine whether planning opportunities exist before the rate change takes effect.

Alternative Planning Strategies

Where a sale before April 2026 is not practical, there may still be tax planning strategies to consider. These depend heavily on individual circumstances but may include:

1. Shareholding and qualification reviews
Ensuring shareholders meet the 5% economic ownership tests well in advance of any exit.

2. Succession planning
Family succession or management buy-outs may allow for staged transitions that align with long-term tax planning.

3. Use of trusts or family structures
In some cases, restructuring ownership may support broader wealth and succession planning objectives.

4. Consideration of alternative reliefs
Other tax reliefs or planning opportunities may help mitigate overall tax exposure depending on the transaction structure.
Professional advice is essential, as poorly planned restructuring shortly before a sale can create anti-avoidance or commercial risks.

Planning Ahead

Selling a business is often a once-in-a-lifetime event, and tax should not be the sole driver of decision-making. However, the increase in the BADR rate means that the tax cost of exiting will rise, making proactive planning increasingly important.

Entrepreneurs who expect to sell, retire, or transfer ownership in the coming years should consider reviewing their position sooner rather than later. Early advice can help ensure that the business structure, shareholdings and exit strategy are aligned to achieve the best possible outcome.

RJP can help you check your position and review the alternatives available to you.

Contact partners@rjp.co.uk

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