Key facts
- Business Asset Disposal Relief (BADR) taxes qualifying gains at 18% (from 6 April 2026), up to a lifetime limit of £1,000,000.
- A share sale is usually more tax-efficient for sellers; an asset sale is often preferred by buyers.
- Goodwill is a chargeable asset — BADR does not apply to goodwill sold to a related company.
- Companies can use Substantial Shareholding Exemption (SSE) for a completely tax-free disposal of trading subsidiaries.
- Making pension contributions from sale proceeds can shelter significant amounts from tax.
Share Sale vs Asset Sale
The structure of the sale determines who pays what tax:[1]
| Feature | Share Sale | Asset Sale |
|---|---|---|
| What is sold | Shares in the company | Individual assets (goodwill, equipment, property, stock) |
| Seller’s tax | CGT on the gain (potentially with BADR) | Company pays CT on gains; shareholders pay further tax on extraction |
| Buyer gets | The whole company (including liabilities) | Specific assets (can claim capital allowances) |
| BADR available? | Yes (if conditions met) | Only on sole trader/partnership sales — not company asset sales |
| Typical preference | Sellers prefer | Buyers prefer |
Negotiation point: The tax difference between a share sale and an asset sale can be substantial. Many deals involve a price adjustment to compensate the seller for the less favourable tax treatment of an asset sale.
Business Asset Disposal Relief (BADR)
BADR reduces the CGT rate on qualifying disposals:[1]
| Period | BADR Rate | Lifetime Limit |
|---|---|---|
| 2025/26 | 14% | £1,000,000 |
| From April 2026 | 18% | £1,000,000 |
| Standard CGT (non-BADR) | 18% or 24% | N/A |
Qualifying Conditions
To claim BADR on a share disposal, you must meet all of the following for at least 2 years before the sale:
- The company must be a trading company (or holding company of a trading group)
- You must hold at least 5% of the ordinary share capital
- You must hold at least 5% of the voting rights
- You must be an officer or employee of the company
- You must be entitled to at least 5% of profits on a winding-up or 5% of sale proceeds
Goodwill and Intangible Assets
Goodwill often represents the largest component of a business sale. The tax treatment depends on the sale structure:[2]
- Sole trader selling the business: Goodwill is a chargeable asset; BADR can apply
- Share sale: Goodwill stays in the company; the gain is on the shares, not the goodwill
- Goodwill sold to a related company: BADR does not apply; gain taxed at standard CGT rates
Related party restriction: If you incorporate a sole trade and sell goodwill to your own company, BADR does not apply. The gain is taxed at 18% or 24%. The company also cannot amortise the goodwill for CT purposes.
Substantial Shareholding Exemption (SSE)
If a trading company sells shares in a trading subsidiary, the gain may be completely exempt from Corporation Tax under SSE. Conditions include:[3]
- The selling company held at least 10% of the subsidiary’s ordinary shares
- The shareholding was held for a continuous 12-month period within the 6 years before the sale
- Both the selling company and the subsidiary must be trading companies
Extracting Sale Proceeds from the Company
After an asset sale, the net proceeds sit inside the company. To get them out tax-efficiently, consider:
- Members’ Voluntary Liquidation (MVL): Proceeds are distributed as capital, qualifying for BADR at 18% (2026/27)
- Dividends: Taxed at 10.75% (basic), 35.75% (higher), or 39.35% (additional) — no BADR
- Pension contributions: The company can make employer pension contributions (CT deductible, NI-free)
Pension planning: Before or after a sale, employer pension contributions of up to £60,000 (plus carry-forward from 3 prior years) can shelter significant proceeds from tax. See Pension Contribution Strategies.
Timing the Sale
- Straddle tax years: If possible, structure deferred consideration so gains fall into two tax years, using two CGT annual exemptions
- Ensure 2-year qualifying period: If you are close to the 2-year BADR holding period, delaying the sale by a few months could save significant tax
- Pre-sale dividend: Extracting cash as dividends before the sale reduces the company’s value and thus the chargeable gain on the shares
Frequently Asked Questions
What is Business Asset Disposal Relief?
Business Asset Disposal Relief (BADR, formerly Entrepreneurs’ Relief) reduces the CGT rate on qualifying business disposals to 14% (rising to 18% from April 2026) on the first £1,000,000 of lifetime gains. You must have owned the business or held at least 5% of the company’s shares for at least 2 years before the sale.
Is a share sale or asset sale better for tax?
For sellers, a share sale is usually better because you pay CGT once (potentially with BADR). In an asset sale, the company pays Corporation Tax on the gain, and you pay further tax when extracting the proceeds. However, buyers often prefer asset sales because they get capital allowances on the purchased assets and avoid inheriting company liabilities.
Can I sell goodwill to my own company?
You can, but BADR does not apply to goodwill transferred to a close company where the seller is a related party. The gain is taxed at standard CGT rates (18% or 24%). Additionally, the company cannot claim Corporation Tax relief on the purchased goodwill if the seller is related.
How can I reduce the tax on selling my business?
Key strategies include: ensuring you qualify for BADR (2 years, 5% shareholding), making pension contributions from the proceeds (up to £60,000 annual allowance plus carry forward), using your CGT annual exemption (£3,000), and timing the sale to optimise your tax position across tax years.
Further Reading
- Choosing a Business Structure — implications for exit planning
- Extracting Profits Tax-Efficiently — MVL, dividends, and pensions
- Retirement Tax Planning — using sale proceeds for retirement
- Using Your CGT Exemption — annual exemption strategies
- Business Asset Disposal Relief (CGT Guide) — detailed BADR rules
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Sources
- Business Asset Disposal Relief — GOV.UK
- Capital Gains Tax: what you pay it on — GOV.UK
- Substantial Shareholding Exemption — HMRC