At a glance
- Capital gains tax rises are affecting owner-managed businesses and high-net-worth individuals.
- Proactively planning for the changes can help minimise tax liability.
- Alternative structures such as pensions, individual ISAs and family investment companies can be considered.
Across the UK economy, capital gains tax (CGT) is on the rise. From April 2025, the capital gains tax rate for business asset disposal relief (BADR) rose from 10% to 14%. In April 2026 it is set to rise further, to 18%. (BADR provides a lower CGT rate on capital gains up to a lifetime total of £1m.)
These latest changes follow increases in the capital gains tax (CGT) rate from October 2024, from 10% to 18% for basic rate taxpayers and from 20% to 24% for higher rate taxpayers. Investors’ relief was reduced from £10m to £1m for disposals in the same timeframe.
The raft of changes will have major implications for owner-managed businesses, founders looking to sell their companies, and high net worth individuals, who could find that their tax burden increases substantially.
Along with their accountants, these individuals and business leaders will need to carefully consider succession planning, business exits and long-term investment portfolios. We spoke to experts about some of the ways those impacted can offset the burden.
Time disposals to minimise tax impact
Rebecca Thorley is client services director at accounting practice DJH. She suggests that selling assets such as shares in a personal trading company or business property that are currently in a loss position, can let clients offset the loss against any gains that will be generated in the future.
The time when a sale takes place could significantly affect a seller’s CGT liability. Consider the example of an owner selling their business for £2m after deducting allowable expenses. Before April 2026, the first £1m will be taxed at the BADR rate of 14% and the remaining £1m at the standard CGT rate of 24%, resulting in a total CGT bill of £380k (£140k on the first £1m and £240k on the second).
After the BADR rate increases to 18% in April 2026, however, the total CGT liability rises significantly to £420k – a higher £180k on the first £1m, and £240k (as before) on the rest.
Thorley suggests that one simple but effective move to consider is exchanging contracts before the end of the tax year, if your client can lock in a lower tax rate based on their other income and complete the deal after the tax year finishes. “If there are no other conditions linked to completion, the tax date is the date of exchange,” she notes.
Nevertheless, Stephen Kenny, head of private client at PKF Littlejohn Tax, warns that efforts to reduce tax should never override the commercial decision: “We have seen clients accelerate disposals to lock in what they think will be a better rate ahead of a budget, only to find the rate increase isn’t as bad as expected and they have secured a lower amount than they would have by holding on.”
“Don’t wait until the last minute, and ensure the right amount of time is taken to complete proper tax planning. Also consider that by rushing to save tax, you may receive a lower price, as purchasers will certainly play to the tax implications.”
Rebecca Thorley, Client Services Director, DJH
Review business succession or sale plans
Preparation is key when considering selling a business, says Thorley. “Don’t wait until the last minute, and ensure the right amount of time is taken to complete proper tax planning. Also consider that by rushing to save tax, you may receive a lower price, as purchasers will certainly play to the tax implications.”
For Thorley, an employee ownership trust (EOT) can be a good option for reducing tax on shares sales. “Better still, you can sell your shares tax free to the trust if it is appropriate for you and the business.”
For Kenny, accountants need to balance the tax, commercial and personal considerations to successfully plan for their clients. They must look first at what clients want to achieve commercially from their asset disposal, and then at how the tax rules will impact on achieving that goal.
Once the commercial drivers are nailed down, succession can be structured so that the value is passed down to the next generation, whilst allowing the owner to maintain control and keep an eye on future income needs.
Explore alternative structures
The CGT rise means alternative tax-efficient investment vehicles such as pensions and individual savings accounts (ISAs) become more attractive for clients. Accountants can advise investing in commercial property through a pension, as both the growth and rental income are tax free. Any assets sold in either an ISA or a pension are exempt from CGT too.
A family investment company (FIC) can be another useful tool when shares can be transferred to the next generation in an inheritance-tax-efficient way instead of selling the business. Business assets and shares gifted into a trust do not generate CGT.
Thorley adds, however, that accountants must give proper advice beforehand to avoid inheritance tax implications. In sectors where capital gains are generated frequently, such as property development, using a limited company to reduce tax liability may be more appropriate.
Taking the risks into account is, however, vital. Kenny adds that people often get carried away by the idea of a family investment company before checking that such a structure is right for their circumstances. “Before setting up they need to consider the set-up costs, the tax costs of extracting from the structure and long-term running costs. They need to consider all the practicalities and costs, not just the headline tax savings.”
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