Tax issues when business owners review exit plans

Steven Edwards, partner and head of insolvency and restructuring, and Emma Reynolds, partner, corporate tax at Crowe. Croner..

Changes to capital gains tax and business asset disposal relief, the old entrepreneurs’ relief, could reduce what business owners retain on exit, but the run-up to a Budget is not the time to make rash decisions. Steven Edwards and Emma Reynolds, partners at Crowe, explain the key issues to consider.

For many owner-managed businesses, assets held by a company are the owner’s main asset and the product of years of work. Any change to capital gains tax (CGT) or business asset disposal relief (BADR), previously known as entrepreneurs’ relief, could therefore have a direct impact on retirement, succession and exit plans.

As we approach another Budget on 28 October, the government is facing a challenging fiscal backdrop, with limited headroom against its fiscal rules. With commitments not to increase income tax, National Insurance and VAT, attention has inevitably turned to other taxes.

CGT has been widely discussed as one potential target, including calls for rates to move closer to income tax rates. There has also been commentary around whether BADR could be revisited, although there are currently no announced proposals for changes to either the BADR rate or its £1m lifetime limit.

Speculation is always rife in the run up to a Budget, especially with a new chancellor, and business owners will inevitably be asking whether they should act now rather than risk a less favourable tax position after 28 October.

Uncertainty is changing behaviour

BADR is already less generous than it once was. For qualifying disposals from 6 April 2026, the rate is 18%, compared with 14% in 2025/26 and 10% previously. The lifetime limit has remained at £1m of qualifying gains per individual since Budget 2020.

The relief remains valuable, currently offering a business owner tax savings of up to £60,000 compared with the current main CGT rate, but the gap between the BADR rate and the main CGT rate is narrower. So, while BADR is less valuable than it once was, getting the conditions right can still make a meaningful difference.

Uncertainty will inevitably bring some decisions forward. Owners may accelerate a sale, simplify a group, transfer a business to the next generation or close a company that is no longer needed. That may be sensible where the commercial decision has already been made. It is less sensible where tax speculation is driving the transaction. Tax should support an exit plan, not create one.

Moving too quickly creates risk. A sale may not complete before any new rules take effect. A rushed restructuring could affect BADR eligibility, create valuation issues or leave the business in a worse commercial position.

The solvent liquidation perspective

Where a solvent company has stopped trading and holds cash or other assets, a members’ voluntary liquidation (MVL) can provide an orderly way to close that company and return value to shareholders. Distributions are normally treated as capital and BADR may be available if the relevant conditions are met.

An MVL is not, however, simply a tax process. It is a formal liquidation conducted by a licensed insolvency practitioner, and the directors must swear a statutory declaration that the company can pay all of its debts, together with interest, within a statutory period.

Timing is equally important. Capital distributions may be made in stages and the relevant tax treatment may depend on the date of each distribution to shareholders, not simply the date the MVL commences.

Beware the anti-phoenixing rules

The targeted anti-avoidance rule on winding-up distributions also needs careful consideration. Broadly, a capital receipt may be taxed as income where the shareholder remains involved in the same or a similar trade within two years, and obtaining an income tax advantage was a main purpose.

The facts matter. A genuine retirement, sale or change of direction is very different from closing one company and restarting substantially the same business through another.

What should business owners do before the Budget?

Already planning a sale or retirement? Bring that conversation forward. There may be good commercial reasons to complete before the Budget, but making an irreversible decision purely to secure today’s tax rates is a different matter.

Check whether BADR actually applies. Don’t assume it does. Shareholdings and voting rights, employment or office-holder status, the trading status of the company and the two-year qualifying period can all matter. If an exit is genuinely being considered, these are things worth checking now rather than once terms have been agreed.

Put some numbers around it. Model the position using today’s CGT and BADR rates and then consider what happens if CGT increases or BADR becomes less generous. For some shareholders the difference may be significant; for others it may not be enough to change the commercial decision.

If an MVL is already on the agenda, think about timing now. Starting a liquidation before the Budget does not necessarily lock in the current tax treatment. Capital distributions can happen later, so the expected timing of those distributions needs to form part of the discussion.

But don’t manufacture a transaction just to beat a rumoured tax rise. We don’t yet know whether CGT or BADR will change at all, still less what any change would look like or when it would take effect. Bringing forward something you already intended to do is quite different from selling, restructuring or liquidating solely because of Budget speculation.

The point is not to try to predict the Budget. If a sale, retirement or company closure is already being considered, now is a sensible time to understand the current tax position, put some numbers around the alternatives and decide whether there is any genuine benefit in acting before 28 October.

About the authors

Steven Edwards, partner and head of insolvency and restructuring, and Emma Reynolds, partner, corporate tax at Crowe