Last updated: June 2026.
Why the year before and after matter most
The year before sale is when you set up the tax structure. The year after is when you deploy the proceeds. The years either side of the transaction itself are where most of the value gets made or lost, usually through tax positions, not deal terms.
Common mistakes:
- Starting to plan only after the buyer's offer comes in (too late for many structural moves)
- Focusing on headline sale price without checking the net-of-tax position
- Not making maximum pension contributions in the run-up
- Not structuring the deal to maximise BADR eligibility
- Receiving the proceeds and immediately making large, hard-to-reverse investments
Business Asset Disposal Relief, the headline relief
Business Asset Disposal Relief (BADR), formerly Entrepreneurs' Relief, reduces the CGT rate on qualifying business disposals. The rates have risen recently and continue to rise:
| Tax year | BADR rate |
|---|---|
| 2024/25 (until 5 April 2025) | 10% |
| 2025/26 | 14% |
| 2026/27 onwards | 18% |
The relief is capped at a £1 million lifetime allowance per individual. Above the cap, standard CGT rates apply (18% or 24%).
Qualification criteria for BADR
To qualify for BADR on disposal of company shares, you must have:
- Held the shares for at least 2 years ending with the disposal
- Owned at least 5% of the ordinary share capital and voting rights
- Been entitled to at least 5% of distributable profits and 5% of assets on a winding up
- Been an officer or employee of the company for at least 2 years
- The company must be a trading company (or holding company of a trading group)
The trading company test is the biggest single trap. Companies with substantial investment assets, cash piles, or property holdings can fail the test even if their core business is trading. The threshold is loosely 'no more than 20% non-trading activities', and HMRC apply it strictly.
The 12 months before sale: key moves
1. Confirm BADR eligibility
Get this checked by a specialist tax accountant. If you fail the trading company test, there are ways to restructure (e.g. distributing excess cash before sale) but they take time. Start at least 12 months out.
2. Maximise pension contributions
Employer pension contributions reduce corporation tax (so they reduce sale price if the company is sold on a multiple of profit, usually a wash). But more importantly, they shelter income from the year-of-sale tax position. A £100,000 employer pension contribution costs £75,000 after CT relief but goes fully into your pension. Use carry-forward to do this on a larger scale where possible. See director's pension contributions and carry forward.
3. Use spouse's allowances
If your spouse owns qualifying shares (5%+, 2+ years, officer/employee), they have their own £1m BADR allowance. For sales above £1m, spouse share ownership can save substantial tax. This needs setting up early, share transfers shortly before sale risk HMRC challenge.
4. Consider an Employee Ownership Trust (EOT)
Selling to an EOT can be 100% CGT-free if structured correctly. The trade-off: you sell to your employees over time (typically deferred consideration), at a fair market value. Not for every business, but worth considering, particularly for owner-managers who want continuity.
5. Tidy up the balance sheet
Distribute surplus cash through dividends or pension contributions before sale, where it would otherwise be sold along with the shares (potentially at less than face value, depending on deal terms). Don't leave £500,000 of distributable reserves on a balance sheet that the buyer will discount.
The deal itself: share sale vs asset sale
| Aspect | Share sale (seller's preference) | Asset sale (buyer's preference) |
|---|---|---|
| What's sold | Shares in the company | Specific assets and goodwill |
| CGT treatment | BADR eligible if criteria met | Asset by asset; goodwill at 18%/24% |
| Liabilities | Stay with company (passed to buyer) | Stay with seller's shell company |
| Tax position for buyer | Inherits existing tax base | Fresh tax base; can claim capital allowances |
| Speed/complexity | Faster, usually cleaner | Slower; more complex tax position |
Most owner-director sales settle as share sales because of the tax advantage to the seller. Buyers may push for asset sales, but often accept a share sale at a lower headline price because their tax saving compensates.
Deal structures and their implications
Three common structures:
1. Full cash payment on completion
Cleanest from the seller's perspective. All proceeds received and taxed in the year of sale. BADR applies to first £1m, standard CGT to the rest.
2. Deferred consideration / earn-out
Part of the consideration paid over future years, often dependent on business performance. Complex tax position: amounts are usually treated as received at completion (with a present value) and re-evaluated later. Specialist tax advice essential.
3. Shares-for-shares (rollover)
If buying via a share-for-share exchange (e.g. selling to a larger company in exchange for their shares), CGT can be deferred until you eventually sell the acquired shares. Useful in some circumstances, but locks you into the buyer's shareholding.
The 12 months after sale: deploying the proceeds
Once the money is in your account, several things matter:
1. Don't make hasty large decisions
The 'sudden wealth syndrome' research is real. Most large mistakes get made in the first 6-12 months after a windfall. Park the money somewhere safe, take stock, and avoid major commitments for at least 3-6 months. See our windfall guide.
2. Top up pensions if there's room
If your pension contributions in the year of sale didn't use the full allowance + carry forward, top up immediately. The relief is at your marginal rate, which after the sale year may be high for one final time before income drops.
3. Use ISA allowances
£20,000 in the current tax year and £20,000 in the new tax year, plus the same for a spouse. Up to £80,000 sheltered in tax-free wrappers within 4-6 weeks of crossing a tax-year boundary.
4. Plan the gifting strategy
If your estate is large enough to face significant IHT, structured lifetime gifting becomes much more important. Gifts become fully IHT-free after seven years. Annual exemptions and gifts-out-of-normal-income exemptions apply immediately. See tax-efficient giving.
5. Consider Business Relief alternatives
If you want to keep an IHT-efficient position on some of the proceeds, AIM portfolios with Business Relief qualify after 2 years and stay in your control. See AIM portfolios and Business Relief.
6. Update your overall estate plan
A business sale typically changes the structure of your estate dramatically. Wills, pension nominations, LPAs, life cover and IHT planning all need fresh thought. Particularly important given the April 2027 pension IHT change.
Common post-sale mistakes
- Investing too aggressively too soon. Sellers often underestimate how much risk they're now in if invested heavily in equities, having previously had wealth tied up in their relatively-stable business.
- Investing too conservatively for too long. The other extreme, leaving £2m in cash earning 4% while inflation runs at 3% loses real value year after year.
- Making large family gifts without planning IHT properly. Gifts at the wrong time can complicate the seven-year rule.
- Buying a new business or property too quickly. Replacement businesses, holiday homes, investment property, all often turn out worse than expected if rushed.
- Not getting fresh financial advice. Pre-sale advisers may not be the right fit for post-sale wealth management.
Frequently asked questions
What is Business Asset Disposal Relief and who qualifies?
Business Asset Disposal Relief (BADR, formerly Entrepreneurs' Relief) reduces the CGT rate on qualifying business disposals to 14% (2025/26, rising to 18% from April 2026), capped at a £1 million lifetime allowance. To qualify: you must have owned the business or 5%+ of shares for at least 2 years; been an officer or employee for at least 2 years; and the company must be a trading company.
Should I incorporate before selling if I'm self-employed?
Generally not as a tax-saving move alone. Incorporating and then selling shortly afterwards rarely qualifies for BADR (the 2-year holding period restarts). For self-employed sale specifically, BADR still applies to the disposal of the business as a going concern. Take advice, the right answer depends on your specific circumstances.
What's better: asset sale or share sale?
Almost always share sale for the seller (lower tax, cleaner break, often higher net proceeds). Almost always asset sale for the buyer (cherry-picks assets, leaves liabilities, fresh tax basis). Negotiation usually settles between these positions, share sale at a discount, or asset sale with indemnities. Get specialist tax and legal advice before agreeing structure.
Can I pay a big pension contribution in the year of sale?
Yes, and it's often one of the best moves. Pension contributions reduce taxable income (and potentially CGT if structured correctly through company contributions). The £60,000 annual allowance plus 3 years of carry-forward can shelter substantial amounts. For high earners affected by the tapered annual allowance, this is more complex but still often valuable.
How long should I keep planning for after the sale?
At least 7-10 years. The decisions you make in the first 1-2 years after sale (where to invest, how to structure income, whether to gift) shape your tax position for the next decade. Sudden wealth syndrome is real, many business sellers make poor decisions in the first 2 years that they regret a decade later.