Expert Opinion: Business Asset Disposal Relief and the new 18% tax rate

With the change in tax rate for Business Asset Disposal Relief now in effect as of 6th April, the team from Stockport firm, IN Accountancy, explains what this mean for entrepreneurs and business owners planning an exit.

From 6 April 2026, the tax rate applying to Business Asset Disposal Relief (BADR), still widely referred to as Entrepreneurs’ Relief, increased from 14% to 18%.

For business owners planning a sale, that is clearly an unwelcome change. It means qualifying gains up to a lifetime limit of £1 million per person now attract a higher rate of capital gains tax than they did before. However, while the increase is frustrating, it is important to keep it in perspective. Even at 18%, Business Asset Disposal Relief still offers one of the most favourable tax rates available to business owners.

What is Business Asset Disposal Relief?

Business Asset Disposal Relief is a capital gains tax relief that reduces the rate of tax where certain conditions are met.

The key requirement is that the asset being sold must relate to a trading business or part of a trading business. This can also include shares in a trading company.

Where the conditions are satisfied, the relief applies to a lifetime limit of the first £1 million of qualifying gains.

What changed from 6 April 2026?

The main change is straightforward: the BADR rate has risen from 14% to 18% with effect from 6 April 2026.

That means anyone completing a qualifying business sale on or after that date will generally pay more tax than they would have done before.

A useful way to view the change is to compare a sale completed on 5 April 2026 with one completed on 6 April 2026. If the capital gain on the sale is more than £1 million then the maximum additional tax that would be payable per person is £40,000..

That is a meaningful amount of money. At the same time, it is not necessarily a change so significant that it should determine whether a business sale goes ahead at all.

What happens above the £1 million limit?

The 18% rate applies to the first £1 million of qualifying gains.

If gains exceed £1 million, the excess is taxed at 24%. Even so, that is still considerably lower than the rates that might apply if the same amount were being extracted as income.

So while the new rate is higher than before, Business Asset Disposal Relief can still produce substantial tax savings when compared with the normal capital gains tax rate of 24% and income tax rates of up to 39.35% on dividends.

Is 18% still a good rate?

In simple terms, yes.

Although no business owner wants to pay more tax than necessary, 18% remains a very competitive rate within the wider UK tax system. For most tax purposes it would be difficult to find a lower rate than that.

So while the increase from 14% to 18% is clearly disappointing for those who did not complete a sale before 6 April 2026, the relief still represents a valuable opportunity to reduce the tax cost of selling a business.

Should the higher rate affect whether you do a deal?

The change is frustrating, but it is important to view it in proportion.

For owners considering a sale after 6 April 2026, the new rate does mean a higher tax bill. However, it should not usually be the deciding factor in whether a transaction proceeds. Paying more tax is never ideal, but that does not necessarily mean the deal no longer makes commercial sense.

In many cases, it is better to focus on the bigger picture rather than letting the increase in the BADR rate become the sole reason to delay or abandon a sale.

Are there more tax-efficient alternatives?

This is a question many business owners ask.

The reality is that there are not many more tax-efficient options available for someone who both owns and works in the business being sold.

There are other reliefs in the tax system, such as Enterprise Investment Scheme (EIS) relief and Seed Enterprise Investment Scheme (SEIS) relief, which can make gains tax-free in some cases. However, those reliefs are generally aimed at external investors in a business rather than owner-managers selling their own company.

For a business owner who is actively involved in the business, 18% is generally about the best rate available.

The exception: selling to an Employee Ownership Trust

The one notable exception mentioned in the transcript is a sale to an Employee Ownership Trust (EOT).

An EOT is, in simple terms, a trust that owns the business for the benefit of the employees. Historically, a sale to an EOT could attract a 0% rate. That rate was increased to 12% with effect from budget day in the previous year.

That still makes it the lowest capital gains tax rate likely to be available to a business owner on the sale of their business.

However, this does not mean an EOT is automatically the right answer. There are many complications involved in selling to an EOT, and it is not something that should be done purely to achieve a 6% to 12% tax saving. It is a route that requires careful thought and should be considered in the round, not just from a tax perspective.

Final thoughts

The increase in Business Asset Disposal Relief from 14% to 18% is an unwelcome change for business owners selling after 6 April 2026. It raises the tax cost on the first £1 million of qualifying gains and means some owners will pay more than they would have done before.

Even so, the position should be kept in perspective:

• the maximum difference between selling on 5 April 2026 and 6 April 2026 is £40,000 per individual
• the 18% rate still applies to the first £1 million of qualifying gains
• gains above that threshold are taxed at 24%
• for most business owners, 18% remains one of the best tax rates available on a business sale
• while EOTs may offer a lower rate, they come with significant complexity

In short, the change is painful, but Business Asset Disposal Relief still offers meaningful tax savings compared with the normal capital gains tax rate. For many business owners, it remains the best available outcome when selling a qualifying trading business.