For many business owners, the way their company is structured has a direct impact on how much tax is paid, particularly when it comes to selling the business. If you are planning to exit in the coming years, it’s crucial to understand how recent tax changes could affect the value you ultimately receive.
A significant change has occurred with Business Asset Disposal Relief (BADR). The rate has increased from 10% to 18%, meaning that if your company is not structured in the most tax-efficient way, you could face tens of thousands of pounds in additional Capital Gains Tax (CGT) when you sell. In some cases, this could mean paying up to £80,000 more than you expected.
With tax legislation reviewed and updated twice a year, what was a sound strategy just 12 months ago may no longer deliver the same benefits. For business owners, especially those considering an exit, now is the time to reassess whether your current setup remains the best approach.
Understanding the Impact of BADR Changes
BADR (formerly Entrepreneurs’ Relief) was introduced to encourage entrepreneurship by offering a lower CGT rate on qualifying business disposals. Historically, the 10% rate provided a valuable incentive when selling a trading company.
However, the recent increase to 18% changes the equation significantly. For a business owner selling shares worth £1 million, the CGT due has risen from £100,000 to £180,000, a difference of £80,000. That extra tax comes directly off the proceeds you have worked years to build.
This change means it is no longer enough simply to rely on BADR without considering the wider structure of your business. In some cases, reorganising into a group structure through a share-for-share exchange could provide new opportunities to mitigate or manage tax exposure in a legitimate, HMRC-approved way.
How a Share-for-Share Exchange Can Help
A share-for-share exchange involves transferring your shares in your trading company to a new holding company in return for shares in that holding company. Your trading company becomes a wholly owned subsidiary, and you now hold shares in the holding company.
This restructuring does not change how your business operates day-to-day, but it can open up valuable planning opportunities:
- Separate Trading and Investment Activities – Keeping trading activities in one company and investments or non-trading assets in another can help preserve BADR eligibility and manage risk.
- Prepare for Partial Sales – If you plan to sell part of the business but retain other elements, a group structure makes it easier to sell a subsidiary rather than the entire entity.
- Enable Tax-Efficient Exits – Certain disposals may qualify for the Substantial Shareholdings Exemption (SSE), reducing or eliminating tax on gains when selling a subsidiary.
- Facilitate Succession Planning – Bringing in family members or management as shareholders can be done more flexibly within a group.
- Improve Asset Protection – Valuable assets, such as property or intellectual property, can be moved out of the trading company to safeguard them from trading risks.
Timing Matters More Than Ever
Tax rules change frequently. What was beneficial a year ago might now be suboptimal. The recent BADR rate increase is a clear example of how quickly tax liabilities can shift. For owners preparing for a sale within the next few years, taking action early is critical.
Reorganising into a group structure well before a sale ensures there is enough time to meet qualifying conditions for reliefs and exemptions. HMRC may challenge any last-minute restructuring if it appears to lack commercial purpose or is solely tax-driven. Planning ahead with a clear strategy provides both flexibility and confidence when it’s time to exit.
Key Considerations Before Making Changes
Before proceeding with a share-for-share exchange, it’s important to evaluate:
- Commercial Purpose – HMRC clearance is more likely when there are genuine business reasons beyond tax savings.
- Professional Advice – Legal and tax implications must be carefully navigated to avoid unintended consequences.
- Impact on Shareholders – All owners must understand and agree to the changes, particularly if there are minority shareholders.
- Cost vs Benefit – Weigh the administrative and legal costs against the potential tax savings and strategic advantages.
Secure the Value You’ve Built
The effort and dedication it takes to build a successful business deserve to be rewarded at exit, not diminished by unnecessary tax charges. The recent increase in BADR rates serves as a timely reminder that tax efficiency is never static.
A share-for-share exchange to create a group structure could be the key to optimising your exit strategy, safeguarding assets, and preserving as much of your hard-earned value as possible. But every situation is unique and what works for one business may not suit another.
If you’re planning to sell in the next few years, now is the time to review your options. Our experienced tax and corporate restructuring team can analyse your current setup, model the potential tax implications, and design a strategy that works for your long-term goals.
Contact us today to arrange a confidential, no-obligation consultation and ensure that when the time comes to sell, your business is structured for maximum tax efficiency.