Capital Gains Tax (CGT) is a key consideration for individuals and business owners in the UK when selling valuable assets, including property, shares, or an entire business. For business owners, particularly in the small and medium-sized enterprise (SME) sector, CGT is a crucial factor in determining the financial outcome of a business sale. Tax can significantly affect the proceeds a seller ultimately retains and plays a vital role in shaping exit strategies and market activity.

What is Capital Gains Tax?

Capital Gains Tax is a tax levied on the profit made when selling or disposing of an asset that has increased in value. The tax is applied to the difference between the asset’s original purchase price and its sale price. In the context of business sales, CGT is payable on the sale of business assets such as shares in a company or the entire business itself.

The CGT rate depends on the type of asset being sold and the taxpayer’s income level, as well as whether any reliefs (such as Business Asset Disposal Relief) are available. For business owners in 2025/26, the default CGT rates and relief structure have changed from earlier years.

Current UK CGT Rates on Business Disposals (2025/26)

For individuals disposing of business assets:

• Standard CGT rates (no relief):
  
  • 18% on gains within the unused basic-rate tax band
  • 24% on gains above the basic rate band

These replaced earlier 10% and 20% rates that applied before October 30, 2024.

Business Asset Disposal Relief (BADR)

One of the most significant reliefs available to business owners is Business Asset Disposal Relief (BADR) — formerly known as Entrepreneurs’ Relief. This relief allows qualifying business owners to pay a reduced CGT rate on qualifying gains when they sell their business or shares in a trading company.

How BADR Works

To qualify for BADR, an individual generally must:

• Have owned the business (or qualifying shares) for at least two years prior to disposal; and
• Be selling the entire business, shares in a trading company, or an interest in a trading partnership.

BADR applies to gains up to a lifetime limit of £1 million per individual.

For disposals made between 6 April 2025 and 5 April 2026, the BADR rate increases to 14%, meaning business owners will pay a higher level of CGT on qualifying gains than in previous years.

From 6 April 2026 onwards, the BADR rate is currently planned to rise further to 18%, significantly reducing the tax advantage that BADR has historically provided.

Why Capital Gains Tax Matters in Business Sales

1. Impact on Financial Outcome

The net proceeds after tax matter most to a business owner when selling their business. CGT can significantly reduce the financial gain from a sale. For example:

• On a qualifying gain under BADR at 14% (2025/26), a £1 million gain could incur £140,000 in tax.
• Without relief at the standard 24% rate, the same gain could incur £240,000 in tax.

Understanding these rates helps owners plan the timing and structure of their sale effectively.

2. Incentivising or Deterring Business Sales

CGT rates and policies directly influence business owners’ decisions to sell. A lower CGT rate can incentivise owners to sell, maximising their post-tax profits, while higher CGT rates may deter sales or lead to strategic timing changes.

3. Strategic Exit Planning

Effective exit planning considers CGT implications. Business owners often work with advisers to:

• Assess eligibility for BADR and other reliefs
• Time disposals around tax year boundaries
• Structure share sales to maximise relief
• Explore trust or gifting strategies where appropriate

Professional tax advice is crucial given the complexity of CGT and evolving tax policy.