An important consideration when selling your business is whether business asset disposal relief (BADR) will be available to minimise the capital gains tax (CGT) on the sale. 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 capital gain
In many cases, the gain subject to CGT 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, or if there have been any share reorganisations during the period of ownership. Any further amounts invested in the business as share capital will also increase the base cost.
Conditions to qualify for BADR
There are various conditions attached to BADR when selling shares in a company, which are essentially:
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.
There are also separate conditions where the business being sold is unincorporated (i.e. a sole trader or a share in a partnership).
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 either under BADR or in its previous guise Entrepreneur’s Relief.
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.
Contact us
Please contact us to find out how the above applies in your circumstances and how we can help you.
Please note that the above is for general information only and does not constitute financial or tax advice. You should not rely on this information to make or refrain from making any decisions. You should always obtain independent professional advice in respect of your own situation.
