Selling a Business: the Tax on Each Exit Route in 2026/27

The price on the heads of terms is not what you keep. Two owners can sell identical companies for the same headline figure and walk away with very different amounts, because the tax on selling a business depends on the route you take out, not only on the number the buyer writes down. In 2026/27, with Business Asset Disposal Relief now at 18% and the Employee Ownership Trust relief cut in half, the gap between routes is wider than it has been in years.

This page compares the main exit routes on the same business so you can see where the tax actually lands: a trade sale with BADR, a sale to an Employee Ownership Trust (EOT) under the new 50% charge, a members' voluntary liquidation (MVL), and a family share gift. It is a decision page. For the full mechanics of BADR and how a share disposal is computed, we link out to our detailed guides rather than repeat them here.

This is general information, not advice on your specific position. The point of reading it is to know which questions to model before you sign.

The exit routes and their tax at a glance

Every figure below is for the same company: sold or wound up for a value of £4,000,000, with an original base cost of £200,000, so a total gain of £3,800,000. The seller is a higher rate taxpayer with their full £1m BADR lifetime allowance available, and we apply the £3,000 annual exempt amount once. This is the single clearest illustration in this cluster of why the route matters.

Exit route	Chargeable now	CGT payable now	Net cash now	Catch
Trade sale + BADR (18% / 24%)	£3,797,000	~£851,280	~£3,148,720	Fully taxed now; needs a real buyer
Sale to an EOT (new 50% rule)	£1,897,000	~£455,280	~£3,544,720	£1.9m latent gain left inside the trust
MVL (winding up) + BADR	£3,797,000	~£851,280	~£3,148,720	Anti-phoenix TAAR risk; closes the business
Family gift + holdover	£0 now	£0 now (deferred)	£0 cash	No cash out; base cost passes to the family

The headline is stark. On the same £4m business, the EOT route defers about £396,000 more tax than a straight trade sale in the year of sale, but it does so by parking a £1.9m latent gain inside the trust and by giving up cash consideration that an outright buyer would pay upfront. A family gift pays nothing now but gets you no money. There is no universally cheapest exit, only the cheapest exit for your goal.

Trade sale with BADR at 18%

A trade sale is the default exit: you sell your shares to a buyer, the gain is fully chargeable in the year of sale, and Business Asset Disposal Relief can reduce the rate on the first £1,000,000 of qualifying lifetime gains. For 2026/27 that BADR rate is 18%, up from 14% in 2025/26 and 10% before April 2025. Gains above the £1m lifetime limit are taxed at the standard rate for shares: 24% for higher and additional rate sellers, or 18% within any unused basic rate band.

On our £4m example, the sums are: £1,000,000 taxed at 18% is £180,000; the remaining £2,797,000 (after the £3,000 annual exempt amount) taxed at 24% is £671,280; total CGT roughly £851,280, leaving about £3,148,720 net. BADR saved £60,000 (6 percentage points on the first £1m), which is real money but a small share of a large gain. The relief matters far more on a sub-£1m sale, where it can halve the effective rate.

We do not re-explain the BADR qualifying conditions here. For the 5% shareholding and voting rights test, the two-year holding period, the officer-or-employee condition and the share-versus-asset-sale distinction, read our full selling your business: CGT and BADR guide and the Business Asset Disposal Relief fundamentals. The rate-change timing is covered in our BADR 2026 rate change article. The one thing to lock in your mind: the disposal date, normally the date of the unconditional contract, sets your rate, so completion either side of 6 April 2026 changes the first-£1m rate.

Sale to an EOT: the new 50% charge

This is where most online guidance is now wrong. Until 26 November 2025, a qualifying sale of a controlling interest to an Employee Ownership Trust was entirely free of Capital Gains Tax, a 100% relief. At the Autumn Budget on 26 November 2025 that relief was cut from 100% to 50%, with immediate effect for disposals on or after that date. There was no transitional period.

Under the new rule, 50% of the gain is your chargeable gain at the time of sale. The other 50% is not exempt, it is held over, and it bites on the trustees' future disposal of the shares. Critically, Business Asset Disposal Relief and Investors' Relief cannot be claimed on the taxable 50%, so that half is taxed at the ordinary 24% rate for higher rate sellers (18% within any unused basic rate band), after the £3,000 annual exempt amount. HMRC's stated reason for the change was cost: the relief had reached roughly £2bn a year, about 20 times its original 2013 costing.

Item	Figure
Sale value to the EOT	£4,000,000
Base cost	£200,000
Total gain	£3,800,000
Old rule (pre-26 Nov 2025): 100% relieved	£0 CGT at sale
New rule: chargeable now = 50% × £3,800,000	£1,900,000
Less annual exempt amount	£3,000
Taxable now	£1,897,000
CGT rate (no BADR/IR on this slice)	24%
CGT payable now	£455,280
Remaining 50% (£1,900,000)	Latent gain; bites the trustees on a future disposal

Before 26 November 2025 this exit was tax-free. The same sale today triggers roughly £455,000 of CGT, and leaves a further £1.9m of latent gain inside the trust. Guides that still say a sale to an EOT is entirely CGT-free were written before the change and are now out of date. That stale advice is exactly the trap to avoid when the numbers are this large.

The EOT still has its uses: it keeps 50% of the gain out of charge now, needs no external buyer, and preserves the culture of an owner-managed business. But it is no longer the automatic tax winner it was, and it usually means accepting deferred, profit-funded consideration rather than cash on completion. For the full mechanics of the 50% split, why BADR is blocked, the latent-gain point and the tax-free employee bonus, see our dedicated EOT tax relief and CGT page, and the employee ownership trust guide for the wider picture.

Winding up: a members' voluntary liquidation

If you want to close a solvent company and take out its reserves rather than sell it as a going concern, a members' voluntary liquidation lets the distribution be treated as a capital gain rather than an income dividend. That matters because a dividend can be taxed at up to 39.35% in 2026/27, whereas a capital distribution can qualify for BADR at 18% on the first £1m and 24% above it, the same profile as a trade sale in our table.

The catch is anti-avoidance. The Targeted Anti-Avoidance Rule (TAAR) can reclassify an MVL distribution as income if you carry on a similar trade within two years of the winding up, a "phoenix" arrangement. An MVL suits a genuine cessation, not a route to re-extract profits at capital rates and start again. It also closes the business, so if a buyer would pay more than the net asset value, a sale usually wins. We cover the mechanics and the TAAR in our members' voluntary liquidation explained article.

Family succession: gifting shares

Passing the business to the next generation is a disposal for CGT at market value, even though no cash changes hands, so a gain can arise on a gift. Where the company is a trading company, gift holdover relief under section 165 TCGA 1992 can defer that gain: no CGT is due at the point of gift, and your base cost passes to the family member who receives the shares. They pick up the latent gain on their eventual disposal.

This route gets you no cash, so it is a succession tool, not an exit for value. It also interacts with inheritance tax and the £2.5m business property relief position, a separate relief and a separate cap from BADR's £1m lifetime limit, so treat a family handover as a multi-year plan rather than a single transaction. Our gifting shares to a family member guide sets out holdover relief and the succession mechanics.

Earn-outs and deferred consideration

Few real deals pay the whole price in cash on day one. A slug of the consideration is often deferred, or made contingent on the business hitting targets, an earn-out. This changes the tax timing and, if drafted carelessly, the tax character. A right to future consideration is generally valued and brought into the capital gain at completion under the Marren v Ingles principle, then trued up when the actual figure is known. But if the earn-out is tied to you staying on and working, HMRC may argue it is employment income, taxed at income tax and National Insurance rates rather than as a capital gain.

The drafting is the difference between a capital receipt and an income one, so model any earn-out before signing. Our earn-out payments tax treatment article walks through the valuation and the income-versus-capital risk.

Timing: the two dates that move the bill

Two 2026-era dates dominate exit-tax planning, and both hinge on the disposal date:

• 6 April 2026: BADR rose to 18%. A completion either side of this date changes the rate on your first £1m of qualifying gain by 4 percentage points, up to £40,000 on a full £1m band.
• 26 November 2025: the EOT relief was cut from 100% to 50%, with no transitional relief. Any EOT sale from this date is materially more expensive than the "0% CGT" pitch still circulating online.

Because the disposal date is normally the date of the unconditional contract rather than completion, and because heads of terms can take months to turn into a signed deal, these dates need to be in the plan from the outset, not discovered at the end. This is core accountant work, and it is exactly where an exit tax review pays for itself.

Getting the CGT modelled before heads of terms

The routes above are not interchangeable. A trade sale realises cash now but is fully taxed; an EOT defers half the gain but blocks BADR and leaves a latent charge in the trust; an MVL suits a clean closure; a family gift preserves the business but returns no cash. The right answer depends on your base cost, your remaining BADR lifetime allowance, whether you need the cash now, and what you want to happen to the business. If a management buyout is on the table, note that we can explain the MBO structure and its tax, and help you plan the exit, but we do not arrange the finance that funds a buyout. And the earlier you start, the more levers you have: see our business exit planning guide for the multi-year runway, and the sell my business guide for the end-to-end process.

The costliest exits we see are the ones structured for the deal and not the tax. Have the CGT modelled before you sign heads of terms, while the structure is still yours to shape.

Authority and further reading: gov.uk Business Asset Disposal Relief; gov.uk Capital Gains Tax rates and annual exempt amount; HMRC Capital Gains Manual CG63950 (BADR); HMRC Capital Gains Manual CG67800 (disposals to EOTs); TCGA 1992 s.236H (EOT relief, inserted by Finance Act 2014 Schedule 37); House of Commons Library briefing CBP-10437 on Employee Ownership Trusts.