Tax on selling a business: could you pay £30,000 more from April 2027?

Thinking of selling your business in the next few months? It’s worth looking carefully at the timetable. A change announced in the Autumn Budget could add as much as £30,000 to the Capital Gains Tax bill for some business owners.

You may have heard that the government plans to halve the lifetime limit for Business Asset Disposal Relief (BADR) from £1 million to £500,000 on 6th April 2027. If you’re planning a sale, this could make quite a difference to what you take home.

What tax do you pay when selling a business?

The tax on selling a business depends on how it’s set up and what you’re actually selling.

For example, if you own a limited company and sell your shares, you’ll normally pay Capital Gains Tax (CGT) on the gain. If you’re a sole trader or partner, CGT may apply to gains on the business assets you sell. Some proceeds may be taxed as income instead.

It’s different if your limited company sells its assets. The company will normally pay Corporation Tax on any taxable gains and profits. You may also face tax when you take the money out of the company.

For individuals, the normal CGT rates are currently 18% and 24% (depending on your income and gains). You’re generally taxed on the gain, not the full sale price. You may also be entitled to relief that reduces your bill.

How does Business Asset Disposal Relief work?

These days, people still talk about Entrepreneurs’ Relief. However, it’s now called Business Asset Disposal Relief, and it lets you pay CGT at 18% on qualifying gains. That can mean a useful saving if you would otherwise pay the 24% rate.

There are conditions to meet, usually for at least two years:

• If you’re a sole trader or partner, you must generally have owned the business for at least two years.
• If you’re selling shares, you must generally be an employee or office-holder of a trading company (or a company in the same group). You also normally need at least 5% of the shares and voting rights, plus a qualifying economic interest. Different rules apply to certain EMI shares.

There are other conditions too. You can check HMRC’s eligibility rules or read our earlier article on Business Asset Disposal Relief.

What’s changing to the BADR limit in April 2027?

At the moment, you can claim BADR on up to £1 million of qualifying gains over your lifetime. From 6th April 2027, the government proposes to cut this to £500,000. The 18% rate itself won’t change.

Bear in mind that the limit applies to the gain, not the amount you sell your business for. It also covers all your BADR claims, not each sale separately.

For example, if you’ve previously claimed BADR on £400,000 of gains, you’d have just £100,000 of the new limit left. Any gain above the remaining allowance would be taxed at your normal CGT rate, potentially 24%.

Could you really pay £30,000 more tax?

Let’s suppose you sell your business and make a qualifying gain of £1 million. You’ve never claimed BADR before, and you would pay CGT at 24% on any gain that doesn’t qualify for the relief.

That’s £30,000 more in Capital Gains Tax. We’ve left out allowances, losses and other reliefs to keep the example straightforward. Your own bill will depend on your circumstances.

Of course, not everyone will pay more. The government estimates that three-quarters of BADR claimants will still get relief on their entire gain.

Should you sell your business before 6th April 2027?

If you’re already planning a sale, the new limit is a good reason to check your timetable. But rushing a sale to save tax could be a costly mistake, particularly if it means accepting a lower price.

You also need to meet the BADR conditions. If you haven’t yet reached the two-year qualifying period, selling early might mean you lose the relief altogether.

And it’s not necessarily enough to sign a contract before 6th April. The government has proposed anti-forestalling rules for certain sales agreed before that date but completed afterwards. Some share reorganisations are covered too.

The details will depend on the transaction, and the Budget proposals still need to become law. It’s worth getting advice before you enter into an agreement.

Thinking of selling your business?

Start by working out your likely taxable gain, rather than just looking at the sale price. You should also check whether you qualify for BADR and how much of your lifetime limit you’ve already used.

If you own a limited company, it’s worth looking at the tax consequences of selling your shares compared with the company selling its assets. The timing may matter too.

If you’re considering a sale, THP can help you work through the figures and see how the proposed changes affect you. Talk to our tax planning team before you commit to a deal.