An important consideration when selling your business is whether business asset disposal relief (BADR) will be available to minimise the capital gains tax (CGT) cost. BADR will be less advantageous from April 2026, so company owners may be looking to sell sooner rather than later.
BADR is currently at a flat rate of 14%, which is 10% lower than the higher rate of CGT. The rate will go up to 18% from 6 April 2026.
Calculating the gain
In many cases, the gain will just be the difference between the selling price and the nominal value of the shares sold. However, establishing the base cost will be more problematic if shares were inherited or received as a gift. Any further amounts invested in the business as share capital will also increase the base cost.
Capital gains tax
There are various conditions attached to BADR, which are basically:
The company has to be a trading company;
A 5% shareholding test must be met; and
You must be a director (or employee) of the company being sold.
These conditions have to be met for a minimum of two years before the sale, so it may be worth postponing a sale where the two-year ownership condition is not met.
BADR has a lifetime limit of £1 million of qualifying gains. This will not be an issue for many company owners, but it might be a problem if relief has been claimed previously.
Other considerations
While it will suit most company owners to sell their shareholding in return for cash, the buyer might prefer to purchase the assets of the company instead; this complicates the tax situation.
Furthermore, rather than a straight cash sale, the buyer will often want the seller to accept shares or loan notes as part of the consideration. Such an arrangement will keep the outgoing owner involved once the business has been sold. To the same end, the buyer may propose a phased payment plan, with an initial amount upfront, followed by further payments linked to future business performance.
Professional advice is essential when selling a business, so please contact us well in advance of any planned disposal.
HMRC’s guide to BADR can be found here.
All data and figures referred to in our news section are correct at the date of publishing and should not be relied upon as still current.
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