Selling a Business in 2026-27: BADR at 18%, Deal Structuring and Tax Planning

Key takeaway

For business owners selling in 2026-27, Business Asset Disposal Relief now applies at 18% (up from 14% in 2025-26 and 10% before that), against a headline CGT rate of 24% for higher and additional-rate taxpayers. BADR's lifetime limit is £1 million, so a qualifying share sale can still save up to £60,000 — but the relief is now worth far less than before, and nothing for basic-rate taxpayers. The tax-efficient sale increasingly depends on deal structure: a share sale with BADR, an EMI two-year hold, earn-out timing, and pre-sale reorganisation all materially change the after-tax proceeds.

Detailed explanation

Share sale vs asset sale

The fundamental tax distinction in any business disposal is what is being sold:

• A share sale — the buyer acquires the company's shares from the shareholder. The seller (an individual) is subject to CGT on the gain, potentially at the BADR rate of 18%.
• An asset sale — the company sells its trade and assets, then distributes the cash to the seller. The company may pay corporation tax on the gain, and the seller pays a second layer of tax on the distribution — typically dividend tax (8.75%/33.75%/39.35%) or CGT on a liquidation.

For individual sellers, a share sale is almost always more tax-efficient because it avoids the double charge and accesses BADR. Buyers often prefer asset sales (for a clean asset base and tax step-up), so this is a central negotiating point.

Business Asset Disposal Relief (BADR)

BADR applies a 18% rate (2026-27) to the first £1 million of qualifying lifetime gains — a maximum saving of £60,000 versus the 24% higher rate. To qualify, the seller generally needs:

• a material disposal of business assets (a sole trader/partner selling all or part of their business), or
• a disposal of shares in a personal company (generally a trading company) where the seller is an officer or employee, holds at least 5% of ordinary share capital and 5% of voting rights, and has met these conditions for at least two years before disposal.

EMI and BADR

For shares held under an Enterprise Management Incentives (EMI) option, the qualifying holding period for BADR is reduced to one year after exercise, and the share is automatically treated as a personal company share. This makes EMI one of the most powerful tax-efficient exit planning tools.

Investors' Relief

Investors' Relief applies the same 18% rate to ordinary shares in unlisted trading companies acquired for new consideration, held for at least three years. The lifetime limit was reduced from £10m to £1m from October 2024.

Earn-outs

Where part of the sale price is deferred and contingent (an earn-out), the seller can elect between:

• being treated as receiving a right of an ascertainable market value (taxed upfront at completion on the value of the earn-out right), or
• the earn-out being taxed when the right is satisfied (taxed on receipt).

The choice affects the rate (BADR 18% vs the rate in the later year), the timing of payment, and any available loss relief — and must be elected within strict deadlines.

Substantial Shareholding Exemption

Where the seller is a company rather than an individual, the Substantial Shareholding Exemption (SSE) can exempt a gain on the sale of shares in a trading company where the seller held at least 10% of the ordinary share capital for a continuous 12-month period in the preceding six years.

Legislation

BADR is at TCGA 1992 s169I–s169R; the staged rate increases (10% → 14% → 18%) were announced at the October 2024 Budget. The £1 million lifetime limit was set in 2020. The EMI BADR treatment is at s169IA. Investors' Relief is at s169VB. SSE is at sCH1A TCGA 1992. Earn-out treatment is at s279A–279D TCGA 1992 (the election regime).

Practical example

A founder sells her trading company shares for £3 million, having held 100% of the share capital and been a director for six years. Her base cost is £100, giving a gain of £2,999,900.

Under BADR at 18% in 2026-27:

• £3,000 annual exemption (0%)
• £1,000,000 at 18% (BADR) = £180,000
• £1,996,900 at 24% = £479,256
• Total CGT: approximately £659,256

Had she sold before 6 April 2025 (BADR at 10%), the tax would have been roughly £520,000 — so the rate increases have added around £140,000 to a £3m exit.

If instead the sale is structured as an asset sale with the company paying corporation tax at 25% on the gain and then distributing the surplus by liquidation, the combined effective tax rate can exceed 35-40% — over £200,000 more than the share-sale route.

Where the founder holds EMI options exercised at least one year before sale, the qualifying holding period for BADR is satisfied even without the usual two-year ownership, which is invaluable for incoming management selling alongside founders.

Common mistakes

1. Assuming BADR still saves 50%. At 18% versus 24%, the relief now saves only 6% — and nothing for basic-rate taxpayers.
2. Selling assets instead of shares. An asset sale triggers corporation tax plus a second charge on extraction — often the single most expensive error in a deal.
3. Failing the two-year holding period. Shares acquired shortly before a sale may not qualify for BADR; planning should begin at least two years before exit.
4. Ignoring the earn-out election. Getting the earn-out election wrong can push a portion of the gain out of BADR or into a later, higher-rate year.
5. Missing EMI planning. Granting EMI options early gives management favourable BADR access and improves deal alignment — too often left to the eleventh hour.

How Newshams can help

Newshams Tax Advisers advises business owners on every stage of an exit — from BADR qualification and EMI planning through to share-vs-asset structuring, earn-out elections and pre-sale reorganisations. We work alongside corporate finance advisers and solicitors to protect the after-tax proceeds. Contact us on +44 (0) 800 211 8657 or enquiries@newshams.com.