Key Takeaways

  • The New Rate: The tax rate for qualifying business sales has risen from 14% to 18% as of 6 April 2026.
  • Lifetime Limit: The £1 million lifetime limit for BADR remains in place; gains above this are taxed at the main CGT rate of 24%.
  • The “Net” Gap: On a £1 million qualifying gain, you will now pay £180,000 in tax—an increase of £80,000 compared to the2020“Entrepreneurs’ Relief” days.
  • Compliance is Strict: You must have owned the business (or 5% of shares and been an employee) for at least 24 months to qualify.
  • Planning Early: To maximize your walk-away figure, you may need to look at “alphabet shares” or gifting to spouses to utilize multiple £1m allowances. You should seek legal and tax advice for this.

Introduction: The Cost of the “Clean Break”

For many entrepreneurs in Worcester, Redditch, and Bromsgrove, their business is their primary retirement fund. The plan is often to build the firm, sell it, and live off the proceeds. However, the “tax friction” of selling a UK business has increased significantly this month.

As of April 2026, the rate for Business Asset Disposal Relief (BADR)—formerly known as Entrepreneurs’ Relief—has hit 18%. This follows a staggered increase from the original 10% rate. For those approaching retirement or a new venture, the question is no longer just “What is my business worth?” but “What will I actually have left after HMRC takes its 18%?”

1. The Math of the 18% Rate

The increase to 18% is a significant jump for business owners who remember the 10% era.

Let’s look at the numbers for a £1,000,000 qualifying gain:

  • Pre-April 2025 (10% rate): Tax paid = £100,000 | Net proceeds = £900,000
  • 2025/26 Year (14% rate): Tax paid = £140,000 | Net proceeds = £860,000
  • Current 2026/27 Year (18% rate): Tax paid = £180,000 | Net proceeds = £820,000

In just two years, the cost of exiting a successful business has increased by £80,000. If your gain exceeds the £1 million lifetime limit, the excess is taxed at the main CGT rate of 24%, further eroding your retirement pot.

2. Are You Still “Qualifying”?

Because the tax stakes are now higher, HMRC is likely to be more rigorous in checking that disposals actually qualify for the 18% rate. To claim BADR in 2026, you generally must meet these conditions for at least two years leading up to the sale:

  1. Personal Company: You must hold at least 5% of the ordinary share capital and 5% of the voting rights.
  2. Employment: You must be an officer (Director) or an employee of the company.
  3. Trading Status: The company must be a “trading company.” If your business holds too much “passive” income or high levels of non-trading investments, you risk losing the relief entirely and paying 24% tax on the whole gain.

3. Bridging the Gap: How to Recover that 18%

If the 18% tax rate has left a hole in your retirement projections, we need to look at “Pre-Exit Optimization.”

  • Utilizing Spousal Allowances: If your spouse is actively involved in the business, they may also be able to hold a 5% shareholding in their own right. If the qualifying conditions are met and the shares are held for at least two years, this could allow both individuals to access Business Asset Disposal Relief. In practice, this can increase the amount eligible for the 18% CGT rate from £1 million to £2 million, potentially saving £60,000 in tax compared to having only one qualifying shareholder (based on the 6% difference between standard CGT rates and BADR).
  • Pension “Carry Forward”: In the years leading up to a sale, maximizing employer pension contributions (as discussed in Article 5) can move wealth out of the company tax-efficiently before the sale price is even negotiated.
  • Structuring the Deal: Will you receive cash, loan notes, or shares in the buying company? Each has different CGT implications. In 2026, the timing of when you “crystallize” your gain is vital.

4. Life After the Sale: Investing the Proceeds

Once the 18% is paid, the real work begins. Managing a seven-figure sum is very different from managing a monthly business salary.

In the 2026/27 environment of higher interest rates and shifting markets, “preserving” your sale proceeds against inflation is the new priority. We help newly-exited entrepreneurs transition from “Business Growth” mode to “Wealth Preservation” mode, utilizing ISAs, Pensions, and diversified portfolios to replace their business income.

FAQs on Selling Your Business in 2026

Q: Can I still claim BADR if I close the business instead of selling it?

A: Yes, “Members’ Voluntary Liquidations” (MVLs) can still qualify for BADR at 18%, provided the company is solvent and you meet the trading and shareholding criteria.

Q: What if I sell my business for £5 million?

A: The first £1m of gain is taxed at 18% (£180,000). The remaining £4m gain is taxed at the main CGT rate of 24% (£960,000). Your total tax bill would be £1.14 million.

Q: I’m only 5% owner but I’m a consultant, not an employee. Do I qualify?

A: HMRC is very strict on the “office holder or employee” rule. If you are a consultant (self-employed), you may not qualify for the 18% rate. We recommend reviewing your contract of employment well in advance of a sale.