The Autumn Budget 2026 has introduced an important change to Business Asset Disposal Relief (BADR), which could affect how much tax business owners pay when selling their company.
Announced by Chancellor John Healey on 28 October 2026, the key change is a reduction in the lifetime limit for qualifying gains under BADR from £1 million to £500,000, coming into effect from 6 April 2027.
What is changing?
BADR, formerly known as Entrepreneurs’ Relief, allows eligible business owners to pay a reduced rate of Capital Gains Tax (CGT) when selling all or part of a qualifying business.
Currently, individuals can benefit from the relief on up to £1million of qualifying lifetime gains, paying CGT at 18%. From 6 April 2027, the lifetime limit will be halved to £500,000. Gains above this limit will be subject to the normal applicable CGT rate, currently 24% for higher and additional rate taxpayers.
What does this mean financially?
For business owners planning to sell their company, the change could result in a significant increase in their tax bill.
For example, consider an individual making a qualifying gain of £1 million from selling their business:
- Before 6 April 2027, the full £1 million could qualify for BADR, resulting in a CGT bill of £180,000.
- From 6 April 2027, only £500,000 will qualify for BADR at 18%, with the remaining £500,000 taxed at 24%.
This would increase the CGT bill to £210,000, an additional £30,000 in tax on the same gain.
What should business owners do?
Business owners considering retirement, selling their company or transferring ownership may wish to review their plans in light of these changes. There may be an opportunity to complete a qualifying disposal before 6 April 2027 and benefit from the existing £1 million lifetime limit.
However, any proposed transaction must be commercially genuine and meet the relevant BADR conditions. It is also important to remember that BADR is not automatic. Eligibility requirements apply, and previous claims will count towards the lifetime allowance.
Final thoughts
The 2026 Budget changes make early tax planning increasingly important for business owners approaching an exit. Taking professional advice now could help identify potential tax savings, assess eligibility and ensure that any business sale is structured appropriately.
If you are considering selling your business, speak to your Dafferns contact sooner rather than later to understand how the reduction in BADR could affect your financial plans.
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