Company Owners Facing Increased Capital Gains Tax Burden

Business owners are being advised to carefully consider the structure of their companies, particularly if they are looking to sell.

This is because the Capital Gains Tax (CGT) rates that apply to the shares in trading companies have increased, and the rate of tax where Business Asset Disposal Relief (BADR) applies is increasing even further from next April.

Corporate tax advisory specialist Tina Harris, Partner at UK top 10 accountancy firm and business advisory group Azets, says company owners thinking of selling should act immediately.

She is advising that there are legitimate methods of lessening the impact of tax rises.

Entrepreneurs’ tax relief (ER) was introduced from the 2008/09 tax year as an incentive for people to establish businesses in the UK by reducing the rate of Capital Gains Tax (CGT) on qualifying disposals.

Under ER, qualifying individuals benefitted from a reduced CGT of 10% when disposing of shares in their personal trading companies, as opposed to the standard 18%, or higher rate of 28%.

The scheme underwent considerable changes and in 2018 was renamed Business Asset Disposal Relief (BADR); the conditions were tightened and the life time allowance was reduced from £10m to £1m.

Tina said: “For many years there was a 10% effective rate of Capital Gains Tax that owner managers could benefit from on sale/retirement, but this ended on 5 April 2025, when the rate increased to 14% with the main rate of CGT having increased to 24% from 30 October 2024.

“However from next April, the rate of tax where BADR applies will be 18%. In less than 10 years the CGT payable on £2m of qualifying gains has more than doubled. We want to highlight this and get people thinking about their options well in advance of any sale.”

Tina said those most likely to benefit from advice include:

• Shareholders of trading companies who are likely to sell within the next 1-5 years

• People with shareholdings worth more than £1m, or more than they want to spend in their lifetime

• People who have family members they may want to benefit from the sale proceeds

She added: “Business Asset Disposal Relief has been a factor that has influenced how company ownership is structured. People have kept companies outside of a group structure so they can sell them separately, they have given 5% of the shares in their companies to spouses and, in some cases, other family members."

“People with valuable companies need to determine whether their company structure still works for them, given these changes, particularly if their shareholdings are worth more than £1m and more than they would want/need to spend."

“There are options that could now benefit owners of trading companies more than ever before, such as having a holding company giving flexibility as to whether to sell the holding company or trading subsidiaries."

"As well as providing opportunities to reduce the tax payable on a sale there may also be IHT and commercial benefits and we would urge anyone in this position to seek comprehensive professional advice.”