BADR in 2026/27: Why Business Owners Need to Rethink Exit Planning

A guest blog by Dale Pollitt, Director at Ryans Accountancy

“For many business owners, selling a company represents the culmination of years of hard work, investment and risk. Yet despite the commercial focus that naturally surrounds a business sale, one of the biggest factors impacting net proceeds is often overlooked until far too late… tax planning.

Business Asset Disposal Relief (“BADR”), formerly Entrepreneurs’ Relief, has historically provided a valuable tax break for shareholders disposing of trading businesses. However, recent changes mean the relief is no longer as generous as it once was, making proactive planning increasingly important.

At the same time, many business owners remain unaware that, in the right circumstances, there may be opportunities to structure a disposal in a way that significantly reduces, or potentially eliminates, tax altogether.

How BADR Has Changed

BADR was originally introduced to encourage entrepreneurship and business investment by allowing qualifying business owners to pay Capital Gains Tax at a reduced rate on the sale of their business.

Historically, the relief was extremely valuable:

• A 10% Capital Gains Tax rate applied to qualifying gains
• The lifetime allowance was originally £10 million

Over time, the rules have gradually become less generous.

For the 2026/27 tax year:

• The BADR lifetime allowance remains at £1 million (as it was in 2025/26)
• The tax rate applying to BADR gains will increase to 18%
• This follows an increase to 14% from April 2025

The result is that business owners exiting companies today may face significantly higher tax liabilities than those who sold businesses several years ago.

For many shareholders, this changes the conversation from simply “claiming BADR” to considering broader pre-sale planning and restructuring opportunities.

What Are the Current BADR Qualifying Conditions?

For shareholders selling shares in a company, the following conditions generally need to be satisfied for at least two years prior to disposal:

The company must be a trading company

The business must primarily carry out trading activities rather than investment activities.

This can become problematic where:

• Excess cash has accumulated
• The company owns investment properties
• Significant non-trading activities exist within the group

The shareholder must hold at least 5%

The individual must generally hold:

• At least 5% of the ordinary share capital
• At least 5% of voting rights
• Economic rights to at least 5% of profits and assets on a winding up (or meet the alternative proceeds test)

The shareholder must be an employee or office holder

The individual must typically be:

• A director, or
• An employee of the company or group

The conditions must usually be met for two years

Importantly, the qualifying conditions must normally be satisfied throughout the two-year period leading up to the disposal.

This is where many issues arise. Share reorganisations, investment rounds, group restructures or dilution events can unintentionally impact eligibility.

Why Early Planning Matters More Than Ever

Historically, many business owners were comfortable relying on BADR alone because the relief itself was generous enough to materially reduce the tax burden.

With higher BADR rates and a significantly lower lifetime allowance now in place, business owners are increasingly exploring wider structuring opportunities ahead of sale.

The earlier this planning takes place, the more flexibility there tends to be.

Areas that should typically be reviewed include:

• Shareholding structures
• Group companies
• Investment assets within trading entities
• Cash reserves
• Succession planning
• Employee share schemes
• Future sale objectives

Unfortunately, many owners only seek advice once heads of terms have already been agreed, by which stage opportunities can be limited.

Looking Beyond BADR: The Role of SSE

One area becoming increasingly relevant in business sale planning is the Substantial Shareholding Exemption (“SSE”).

Unlike BADR, which applies to individuals paying Capital Gains Tax, SSE is a Corporation Tax relief available to companies.

In broad terms, where a holding company disposes of shares in a qualifying trading subsidiary, any gain arising on the disposal can potentially be exempt from Corporation Tax entirely.

This creates significant planning opportunities.

In the right circumstances, business owners may be able to:

• Undertake a pre-sale restructuring
• Insert a holding company
• Separate trading and investment activities
• Sell shares through a corporate structure
• Potentially achieve a tax-free disposal at company level under SSE

For business owners considering future acquisitions, reinvestment or long-term wealth planning, this can be extremely powerful.

Rather than extracting proceeds personally and suffering immediate tax charges, funds can potentially remain within a corporate group structure for future investment opportunities.

Restructuring Before Sale

Restructuring exercises are becoming increasingly common as business owners seek greater flexibility ahead of a transaction.

This might involve:

• Inserting holding companies
• Demerging investment assets
• Separating trades
• Creating cleaner group structures
• Protecting surplus cash or property assets
• Preparing for succession or partial exits

Importantly, these exercises need careful planning and sufficient lead time.

Transactions entered into shortly before a sale may attract HMRC scrutiny, particularly where anti-avoidance legislation could apply.

Done correctly, however, restructuring can:

• Improve buyer attractiveness
• Reduce commercial risk
• Protect key assets
• Create tax efficiencies
• Improve long-term wealth planning opportunities

The New Exit Planning Landscape

The days of simply relying on BADR at the point of sale are rapidly disappearing.

Today, successful exits increasingly involve:

• Early planning
• Strategic structuring
• Commercial preparation
• Tax efficiency reviews
• Long-term wealth planning

For business owners considering a sale in the next few years, reviewing structures now, rather than shortly before a transaction, could make a substantial difference to the eventual outcome.

In many cases, the biggest tax savings are achieved not through last-minute advice, but through planning undertaken years before a deal completes.”

Dale Pollitt is a Chartered Accountant and Chartered Tax Adviser with over 18 years’ experience advising owner-managed businesses. He is a Director and co-owner of Ryans Chartered Accountants and leads the firm’s advisory work across mergers and acquisitions, business restructuring and exit planning.