For many business owners, selling a business represents the culmination of years, sometimes decades, of work. But while attention is often focused on valuation, deal structure and succession planning, the tax implications can have a significant impact on how much you ultimately retain from the sale.

Capital Gains Tax (CGT) is one of the key considerations when exiting a business, and with recent legislative changes affecting Business Asset Disposal Relief (BADR), careful planning has become more important than ever.

What is Capital Gains Tax?

Capital Gains Tax is charged on the profit made when you dispose of an asset that has increased in value. In a business context, this commonly applies to:

• Selling shares in a limited company
• Selling a sole trader or partnership business
• Disposing of business assets
• Exiting through management buyouts or third-party sales

The tax is applied to the gain made, not the total sale proceeds, after allowable costs and reliefs have been deducted.

For the 2026/27 tax year, the standard CGT rates are:

• 18% for gains falling within the basic rate band
• 24% for gains above the basic rate band

Individuals also have an annual CGT exemption of £3,000.

Business Asset Disposal Relief (BADR)

For qualifying business disposals, Business Asset Disposal Relief can reduce the rate of Capital Gains Tax applied to eligible gains.

Formerly known as Entrepreneurs’ Relief, BADR now applies an 18% Capital Gains Tax rate on qualifying gains, subject to a lifetime limit of £1 million.

For business owners planning an exit, this relief can still offer substantial tax savings when compared to the standard higher CGT rate.

Example

A business owner sells shares in their trading company and makes a qualifying gain of £1 million.

Scenario	CGT Rate	Tax Payable
Qualifying for BADR	18%	£180,000
Standard higher CGT rate	24%	£240,000

This creates a potential tax saving of £60,000 where BADR applies.

Do you qualify for BADR?

Eligibility depends on several conditions being met throughout a qualifying period, including:

• The company being a trading business
• Holding at least 5% of the ordinary share capital and voting rights
• Being an employee or office holder of the business
• Meeting the ownership conditions for at least two years before disposal

The rules can become more complex where there are group structures, investment activities, family ownership arrangements or phased exits involved.

Importantly, not all business disposals qualify. Investment companies and most property investment businesses, for example, will generally not qualify for BADR.

Tax planning before an exit

Successful exits rarely happen overnight. Tax planning should ideally begin well before a sale process starts.

Areas business owners should review include:

Share structure

Ensuring shareholders meet the qualifying BADR conditions in advance of any sale can help maximise available reliefs. This may include reviewing the company’s activities and, where appropriate, restructuring the business to separate trading and investment activities, helping to reduce the risk of the company failing to qualify as a trading company for BADR purposes.

In some cases, spouses or civil partners may also be able to utilise separate BADR allowances where shares are appropriately structured.

Timing and deal structure

The structure of a transaction can influence the amount of tax payable. Asset sales, share sales, deferred consideration arrangements and earn-outs can all carry different tax implications.

Reviewing these early can help avoid unexpected liabilities further down the line.

Pension contributions

Using pension contributions strategically before or after a transaction can help reduce Income Tax exposure and support longer-term wealth planning.

Investment and wealth planning

A liquidity event often changes a business owner’s financial profile overnight. Moving from business growth to wealth preservation requires a different strategy.

This may include:

• Diversifying investments
• Estate and inheritance planning
• Tax-efficient investment structures
• Retirement income planning
• Family wealth protection

Employee Ownership Trusts (EOTs)

In some cases, business owners may wish to consider an Employee Ownership Trust (EOT) as an alternative exit route. Subject to the relevant qualifying conditions being satisfied, an EOT can still provide favourable Capital Gains Tax treatment when compared with a conventional sale, whilst also facilitating succession of the business to its employees.

Beyond the tax benefits, an EOT can provide an attractive succession solution where there is no obvious third-party purchaser, management buyout team or family successor. Employee ownership can help preserve the culture, independence and long-term legacy of the business, whilst allowing existing shareholders to realise value for the company they have spent years building. As EOT transactions are subject to detailed legislative requirements and recent reforms have altered the tax treatment available, careful planning and specialist advice are essential.

Pre-sale restructuring and Family Investment Companies (FICs)

Where an exit is anticipated sufficiently far in advance, it may be possible to undertake pre-sale restructuring to improve both tax efficiency and longer-term succession planning outcomes. For example, some business owners may choose to introduce a new holding company above the trading business prior to a sale.

Provided the conditions for SSE are satisfied, including the applicable holding period requirements, a subsequent disposal of the trading subsidiary by the holding company may qualify for SSE, potentially allowing the sale proceeds to be received by the holding company without a Corporation Tax charge. The holding company can then be retained as a long-term family investment vehicle, allowing surplus funds to be invested and managed within a corporate structure whilst facilitating succession and estate planning objectives.

As these arrangements are subject to detailed tax and commercial considerations, early planning and specialist advice are essential.

Don’t let tax be an afterthought

Many business owners spend years building value in their company, but insufficient exit planning can lead to avoidable tax costs.

The earlier conversations begin around succession, disposal structure and personal financial objectives, the greater the opportunity to plan efficiently and protect long-term wealth.

Tax should not be considered in isolation. The interaction between transaction structure, purchase price adjustments, earn-outs, warranties, pension planning and wealth management can all affect the amount ultimately retained by a business owner after completion.

At bk plus, we work closely with business owners throughout the exit journey, providing integrated tax, transaction and succession planning advice to help maximise value and protect long-term wealth. Get in touch with one of our team members for more information.