A Tax Increase That Arrived in Stages
Capital Gains Tax for business owners has undergone its most significant overhaul in over a decade. The changes did not arrive all at once — they were phased in across three fiscal events between October 2024 and April 2026 — but the cumulative effect is substantial.
For anyone selling business assets, disposing of shares, or transferring ownership of a company, the tax landscape looks very different from two years ago. Understanding the new rates, and the planning strategies that remain available, is essential for making informed decisions about timing and structure.
What Has Changed
The key changes affect both the standard CGT rates and the preferential rate available through Business Asset Disposal Relief (BADR), formerly known as Entrepreneurs’ Relief.
Standard CGT rates: The higher rate of CGT on asset disposals rose from 20% to 24% with effect from 30 October 2024. This applies to gains on shares, business assets, and other chargeable disposals (residential property rates were already higher and remain at 24%).
Business Asset Disposal Relief: BADR provides a reduced rate of CGT on qualifying business disposals up to a lifetime limit of £1 million in gains. The rate has increased in two steps:
- From 10% to 14% on 6 April 2025
- From 14% to 18% on 6 April 2026
The lifetime limit remains at £1 million, meaning the maximum tax saving from BADR compared to the standard rate is now just £60,000 (£1 million × 6% difference between 18% and 24%). Under the old 10% rate with a 20% standard rate, the saving was £100,000.
Investors’ Relief: The lifetime limit for Investors’ Relief was cut from £10 million to £1 million with effect from 30 October 2024, and the rates now mirror BADR at 18%.
The Real-World Cost
To put these changes in perspective, consider a business owner who sells their company for a gain of £2 million:
Under the old rules (pre-October 2024):
- First £1 million at 10% (BADR) = £100,000
- Remaining £1 million at 20% = £200,000
- Total CGT: £300,000
Under the current rules (from April 2026):
- First £1 million at 18% (BADR) = £180,000
- Remaining £1 million at 24% = £240,000
- Total CGT: £420,000
That is an additional £120,000 in tax on the same transaction. For larger disposals, the difference is proportionally greater. A £5 million gain now attracts £1,140,000 in CGT compared to £900,000 under the old rules — an increase of £240,000.
Planning Strategies That Remain Available
Higher rates do not eliminate the opportunity for legitimate tax planning. Several strategies remain effective, though they all require advance preparation.
Using both spouses’ BADR allowances: Each individual has their own £1 million BADR lifetime limit. If business assets are held jointly between spouses, both allowances can be used, doubling the relief available on a disposal. However, the non-trading spouse must genuinely own the shares and meet the qualifying conditions — HMRC will challenge arrangements that appear artificial.
Enterprise Management Incentive (EMI) schemes: EMI share options allow employees and directors to acquire shares at a favourable CGT rate. While the BADR rate has risen to 18%, EMI remains one of the most tax-efficient ways to reward key employees and facilitate management buyouts.
Holdover relief: When business assets are gifted (rather than sold), holdover relief can defer the CGT liability by passing the gain to the recipient. This is particularly useful for passing business assets to the next generation. The gain is not eliminated — it is postponed until the recipient eventually disposes of the asset — but it provides breathing room and may result in a lower effective tax rate if the recipient is in a lower income bracket.
Pension contributions: Sale proceeds can be sheltered from future IHT (and potentially reduce income tax) through pension contributions. While pension contributions do not reduce CGT on the disposal itself, they form part of a holistic post-sale tax strategy that can significantly reduce the overall tax burden on the proceeds.
Timing of disposal: The annual CGT exemption (currently £3,000 per person) is modest, but for business owners planning a phased exit — selling shares over several tax years — it provides a small but useful reduction in the total tax bill. More importantly, timing a disposal to fall in a tax year where the owner has lower income can affect the rate at which gains are taxed.
The Employee Ownership Trust Question
Employee Ownership Trusts (EOTs) were once the most tax-efficient exit route available to business owners, offering complete exemption from CGT on a qualifying sale. From November 2025, the relief was halved to 50%, making the effective CGT rate approximately 12% on a qualifying EOT sale.
At 12%, an EOT sale is still more tax-efficient than a standard sale at 24% or even a BADR-qualifying sale at 18%. However, the gap has narrowed significantly, and the non-tax considerations of an EOT — employee readiness, governance structure, funding the purchase — need to be weighed more carefully against the reduced tax benefit.
For owners whose employees are genuinely capable of running the business and who value the legacy of employee ownership, an EOT remains attractive. For those who were considering an EOT primarily for the tax benefit, the calculus has changed.
Interaction with Inheritance Tax
CGT and IHT do not exist in isolation, and business owners need to consider both when planning a disposal. A business that qualifies for Business Property Relief (BPR) may be partially or fully exempt from IHT if held until death — but the new £2.5 million cap on BPR means this exemption is now limited.
This creates a genuine planning dilemma: sell the business during your lifetime and pay CGT at 18-24%, or hold it until death and potentially pay IHT at 20% (on the amount above the £2.5 million BPR cap) but avoid CGT entirely (because death is not a chargeable event for CGT purposes, and the base cost is uplifted to market value).
The right answer depends on the size of the business, the owner’s age and health, the availability of other IHT reliefs, and whether the owner actually wants to continue running the business. There is no one-size-fits-all solution, but the interaction between CGT and IHT planning is now more important than ever.
What Business Owners Should Do Now
The new CGT rates are here to stay for the foreseeable future. Business owners who are considering a disposal — whether a full sale, a partial exit, or a transfer to family members — should:
- Get a current valuation to understand the potential gain and the tax at stake
- Review BADR eligibility to ensure qualifying conditions are met (or can be met before disposal)
- Consider spousal transfers to maximise the use of both BADR allowances
- Model different scenarios — sale vs hold, lifetime transfer vs death, EOT vs trade sale — to find the most tax-efficient route
- Integrate CGT planning with estate planning to avoid solving one tax problem while creating another
The cost of getting this wrong is measured in tens or hundreds of thousands of pounds. The cost of professional advice is a fraction of that. In a world of higher rates and fewer reliefs, planning has never been more important.
If you are considering selling or transferring your business and want to understand the tax implications, contact The Legacy Wills Company for practical guidance on your options.