Selling a business you have built over twenty or thirty years is rarely just a financial event. It is the end of a chapter, and for most owners it is also the single largest tax decision of their life. In our work with families across Worthing and the surrounding area, we see the same pattern again and again: the sale itself goes smoothly, but the tax planning that should have started two years earlier never happened. By the time the solicitors are drawing up completion documents, it is often too late to change anything.
This article sets out how Business Asset Disposal Relief actually works, what the £1m lifetime limit means in practice, and the mistakes we see owners make in the two years before they sell.
What Business Asset Disposal Relief actually is
Business Asset Disposal Relief, still widely known by its old name Entrepreneurs’ Relief, is a capital gains tax relief available when you sell or dispose of all or part of a qualifying business. Instead of paying capital gains tax at the standard rates, gains that qualify are taxed at a lower rate, up to a lifetime limit of £1m of gains per person.
The rate itself has changed twice recently, and it is important to know where things stand. Gains on qualifying disposals made on or before 5 April 2025 were taxed at 10%. From 6 April 2025 the rate rose to 14%. From 6 April 2026 it rose again, to 18%. So a sale completing today is taxed at a materially higher rate than the same sale would have attracted eighteen months ago. This is worth understanding because many owners still quote the old 10% figure to us, having read about it years ago and never checked again.
The relief applies per person, not per business and not per household. A married couple who each qualify in their own right can each use their own £1m lifetime limit, effectively sheltering £2m of combined gains at the lower rate between them, provided the shares or business interests are genuinely held and structured in a way that gives each of them a qualifying stake.
Who actually qualifies
The relief is not automatic simply because you own a business and you are selling it. For a sole trader or partner, you need to have owned the business for at least two years up to the date of sale. If you are closing the business rather than selling it as a going concern, the same two-year ownership test applies, and you then have three years from ceasing to trade to dispose of the remaining business assets and still qualify.
For company shares, the tests are a little different. You need, for at least two years up to the sale, to be an employee or office holder (a director counts) of the company, and the company’s main activity needs to be trading rather than investment, or it needs to be the holding company of a trading group. This last point catches out more owners than any other. If your company has, over the years, built up substantial cash reserves, investment property, or a share portfolio sitting alongside the trading business, HMRC can take the view that the company is no longer wholly or mainly trading. That can jeopardise the relief on the whole disposal, not just on the non-trading element.
This is precisely why the two years before a sale matter so much. The qualifying tests are largely backward-looking, assessed over that two-year window, which means decisions made now shape whether relief is available when you eventually sell.
The planning mistakes we see in the final two years
The single most common mistake is inaction dressed up as prudence. Owners often decide, quite reasonably, to build up cash in the company as a buffer before a sale, or to let investments accumulate inside the business rather than extracting them. Left unchecked, this can tip a genuinely trading business towards being viewed as an investment company, which threatens the relief itself. A conversation with an accountant about the balance sheet, well before a sale is even on the horizon, is far better than a scramble in the final months.
The second mistake is leaving share structure until the last minute. If a spouse, adult child, or long-serving employee is going to hold shares and use their own lifetime limit, those shares generally need to have been held, and the holder needs to have met the employment and trading tests, for the full two years before completion. Introducing new shareholders three months before a sale, hoping to multiply the relief across the family, simply will not work under the current rules. This is planning that has to start years, not months, ahead.
The third mistake is forgetting that the £1m limit is genuinely a lifetime limit, not an annual one. If you have used relief on a previous business sale, even one from many years ago, that usage counts against the limit on this sale. We regularly meet owners who assumed the limit reset with each new venture. It does not. Anyone who has sold a business before, or received relief on an earlier disposal of shares or assets, needs to check exactly how much of their £1m they have already used before assuming the full amount is available now.
The fourth mistake is treating Business Asset Disposal Relief and Business Relief for inheritance tax as the same thing, or as interchangeable. They are not. Business Asset Disposal Relief is a capital gains tax relief that applies when you sell your business during your lifetime. Business Relief is a separate inheritance tax relief that can reduce the value of a qualifying business interest in your estate if you keep it until death, or pass it on as a gift. Selling a business removes it from your estate and turns it into cash or investments, which are treated very differently for inheritance tax purposes than a trading business interest would have been. That change in the shape of your estate is exactly the kind of thing that should prompt a fresh look at your will and any wider estate plan, ideally before completion rather than after the money has already landed in your account.
Why timing matters more than most owners expect
Because the rate itself has moved from 10% to 14% to 18% within the space of two tax years, timing a disposal has become a genuinely material decision, not a technicality. An owner part way through a sale process when a rate change falls due may find the tax bill on completion is meaningfully higher than it would have been a few weeks earlier, purely because of when contracts were exchanged and completed. This is a conversation to have with your accountant and solicitor early in any sale process, not something to discover from a completion statement.
It is also worth remembering that the rules around qualifying trading status, ownership periods, and associated disposals are detailed, and HMRC does scrutinise claims for this relief closely given the sums involved. Getting professional advice from a specialist accountant well before you start any sale conversations, rather than once heads of terms are agreed, gives you the best chance of the relief applying as you expect.
Where this fits with the rest of your planning
A business sale changes an estate. Cash sits differently to a trading business for inheritance tax purposes, and a large lump sum arriving in your later years often prompts sensible questions about gifting, about how any remaining nil-rate bands and residence nil-rate band might apply to your estate, and about how the money should be held and passed on. None of this needs to be complicated, but it does benefit from being looked at deliberately, at the time of the sale, rather than left to sort itself out. If you are contemplating selling a business in the next two or three years, the conversation worth having now is not just with your accountant about the tax rate. It is also about what happens to that money once it is yours, and how your existing plans should adapt to reflect the new shape of your estate.