2026 BADR Changes: How the 18% Rate Affects Business Valuation and Exit Proceeds

Expert Insight

Kishen Patel

Founder, Consult EFC | ICAEW Chartered Accountant

Kishen specialises in helping founders navigate the 2026 Business Asset Disposal Relief (BADR) changes. By aligning company data with “Investor-Ready” standards, he ensures owners protect their Business Valuation and maximise net proceeds against the rising 18% tax rate.

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If you’re building a business with an exit in mind, the headline sale price is only half the story. What you keep after tax can shift your real company valuation, and it can change how you negotiate, when you sell, and whether a buyer pushes for a different structure.

Business Asset Disposal Relief (BADR) is a UK Capital Gains Tax (CGT) relief that can reduce the CGT you pay when you sell qualifying shares or business assets, up to a £1 million lifetime limit. That matters for SME owners planning to raise funding, sell shares, run an MBO, or wind up via an MVL, because it directly affects your take-home proceeds.

Here’s the key change: for disposals on or after 6 April 2026, the qualifying BADR CGT rate rises to 18%, up from 14% in 2025/26. The £1 million lifetime cap stays the same, and the eligibility rules remain strict, so you can’t assume you’ll qualify without checking the details.

This article explains how that 4% rate rise feeds into valuation expectations, buyer pricing, timing decisions, and deal terms. Consult EFC works with founders to plan growth properly, so an eventual exit stacks up on paper and in your pocket.

What are the 2026 BADR Changes? (The 18% Rate Shift)

From 6 April 2026, the headline BADR story is simple: the tax rate on qualifying gains goes up, but the rules and the £1 million lifetime cap stay. That sounds like a small tweak. In practice, it changes what you keep, which can influence deal terms, your personal cash position, and even how you think about Company Valuation when you are weighing up offers.

The important part is not just the percentage. It is how the percentage interacts with the cap, your eligibility, and the timing written into your sale documents.

New BADR CGT Rates: Comparing 14% vs 18% Liabilities

From 6 April 2026, BADR on qualifying gains is taxed at 18% (up from 14%). That 4% rise looks minor until you put a real number next to it.

Here is a simple example using a £1,000,000 qualifying gain:

That is £40,000 less in your pocket, on the same £1 million gain. Think of it like a success fee you did not agree to pay, it just arrives because the calendar changed.

BADR still matters though. Standard CGT rates on share disposals can be up to 24%, so even at 18%, BADR can still mean a meaningful saving. The relief is less generous, but it has not disappeared.

The £1 million lifetime cap still limits the benefit, especially for bigger exits

The rate changes in 2026, but the £1 million BADR lifetime cap does not. That cap is not “per business” or “per sale”. It is across your whole life. Use £300,000 of BADR today, and you only have £700,000 left for the next disposal.

This is where larger exits feel the squeeze, because only the first slice of gain gets the BADR rate. The rest falls into standard CGT rates.

A simple scenario shows the point:

• You sell shares and make a £2,000,000 gain.
• You have not used BADR before.
• The first £1,000,000 may qualify for BADR (at 18% from 6 April 2026).
• The remaining £1,000,000 is taxed at standard CGT rates.

So, even if you qualify, BADR only protects part of the gain. That affects how you approach negotiations. For example, a buyer might focus on headline price, but you should focus on after-tax proceeds. It also feeds into planning conversations around structure (share sale vs asset sale), timing, and whether incentives (like earn-outs) shift gains into future tax years.

Takeaway: On bigger exits, BADR is a partial discount, not a blanket shield.

HMRC Eligibility: Is Your Company Valuation Protected by BADR?

Because the cap is tight and the rate is rising, the worst outcome is assuming you qualify and then finding out late that you do not. HMRC’s BADR tests are strict, and small changes in your cap table or balance sheet can knock you out.

Before you price a deal, sanity-check the basics:

• Trading company requirement: The company must be a trading company (or the holding company of a trading group). If it is mainly investment activity, BADR can fail.
• 5% minimum shareholding: You generally need at least 5% of ordinary share capital and 5% voting rights. You also need entitlement to 5% of profits and 5% of assets on a winding up (or meet the alternative “5% of sale proceeds” test on a sale of the whole company).
• Director or employee: You must be an officer or employee of the company.
• Two-year qualifying period: The conditions must be met for at least two years up to the disposal.

In real businesses, the pitfalls tend to come from perfectly normal growth events:

• Dilution after funding: A strong funding round can drop you below 5% unless you planned for it.
• Growth shares and alphabet shares: The headline percentage can look fine, yet the rights on profits or sale proceeds fail the BADR tests.
• Too much cash or property: If the company builds up large investment assets (excess cash, investment property, portfolios), HMRC may argue it is not mainly trading.
• Stepping down too early: Resigning as a director or moving off payroll before completion can break the “officer or employee” requirement, even if you built the business.

This is why we push founders to treat BADR like a compliance project, not a tick-box at the end. Consult EFC often sees eligibility issues months after a term sheet is agreed, when fixing them is harder and more expensive.

Contract timing can trip you up, even if you agree a deal before April 2026

You might think signing a deal before 6 April 2026 locks in the 14% rate. The timing rules can upset that.

In plain English, the tax system looks at when the disposal happens. Normally, that can be the date you enter into an unconditional contract. However, from 6 April 2026 there are anti-forestalling rules that can pull you into the new 18% rate if the contract is signed before 6 April 2026 but completion happens on or after that date.

So if you sign in March 2026, but complete in April 2026, you may still end up taxed at 18%. The paperwork timeline matters as much as the handshake.

There is a limited exception for small gains in current guidance, tied to a threshold for total gains across these types of contracts. If your gains are larger, it is less likely to help in practice.

The practical fix is simple: get advice early on the SPA terms that control timing, especially:

• Whether the contract is conditional or unconditional
• The completion date and whether it can slide
• Conditions precedent (regulatory approvals, consents, funding) that may push completion past 6 April 2026

If your exit timetable is tight, treat the calendar like a key deal term. A few weeks’ movement can change your tax bill by tens of thousands.

How Capital Gains Tax Affects Business Valuation and Net Proceeds

When you sell, the headline offer is the easy part to talk about. The harder part is what you actually keep after tax and deal costs. That is why a BADR rate change can affect your real Company Valuation outcome, even if the buyer never mentions tax.

Think of an exit like pouring water into a bucket with small holes. The sale price is the water; tax and fees are the holes. A 4% increase in BADR makes one of those holes bigger, so the bucket fills more slowly.

Gross Sale Price vs Net Exit Proceeds: The “Take-Home” Reality

Gross sale price is the headline price the buyer agrees to pay for your shares (or assets). It is the number that makes the press release and sets expectations.

Your capital gain is the profit for tax purposes, broadly the sale proceeds minus what you paid for the shares (and certain allowable costs). In plain terms, it is the part HMRC taxes.

Net proceeds is what lands with you after tax and deal costs. That is the number that pays off your mortgage, funds your next venture, or buys you time.

Here is a simple SME-style example, using round numbers:

Now look at what a 4% BADR rate rise does to the same deal, just on the BADR-qualifying slice:

The change is £40,000 less cash from the same £1 million qualifying gain. That alone can move the goalposts. It might cover a year of school fees, repay a director’s loan, or reduce the buffer you wanted after completion.

If you’re deciding whether to accept an offer, focus on net proceeds, not the headline price.

Seller expectations may rise, but buyers still price off cashflow and risk

Most buyers don’t price your company based on your personal tax bill. They price based on what the business can produce and how risky that cashflow is. In practice, they usually anchor valuation on three things:

• Future cashflows: What profit or free cash the business can reliably generate, and how fast it can grow.
• Comparable deals: What similar companies sold for, often expressed as a multiple of EBITDA, revenue, or recurring income.
• Risk: Customer concentration, key-person dependency, contract quality, margins, working capital needs, and the strength of the management team.

So, when BADR rises, a buyer rarely says, “We’ll pay more to cover your tax.” Their model hasn’t changed. Their cost of capital hasn’t changed. Your tax bill sits outside their return.

However, tax still affects the final agreed price because it changes your minimum acceptable number. In other words, it influences your reservation price (the lowest deal you’d accept).

Two things often happen in the real world:

First, sellers try to protect their take-home by pushing for a higher gross price. That can stall negotiations if the buyer sees no matching uplift in cashflow.

Second, timing becomes part of the price discussion. If selling in March 2026 means you keep more than selling in April 2026, you may accept a slightly lower headline offer earlier, because your net result is better.

This is why Company Valuation is not only maths. It is also behaviour. Tax changes shift behaviour, and behaviour changes outcomes.

Exit Strategy & Deal Structure: Navigating the 18% Tax Hike

The biggest sensitivity tends to show up where the price is uncertain or paid over time. That is where the timing of a gain and the certainty of cash matter most.

Earn-outs link part of the price to future performance. If targets are hit, you get paid later. If they are missed, you may never see the full amount. From a seller’s view, that is a double hit: you take more risk and you may end up taxed at a higher rate if the payment falls into a later period.

Deferred consideration is different. The amount is fixed, but it is paid later (for example, in 12 to 36 months). You still face timing risk, because you carry buyer credit risk and you wait for your money.

As April 2026 approaches, sellers often push for:

• More cash at completion, because it locks in certainty and can simplify personal planning.
• Shorter deferral periods, because waiting increases risk and can shift the tax position.
• Cleaner completion mechanics, so the disposal date doesn’t drift past key tax dates.

Buyers, on the other hand, often prefer earn-outs because they manage downside risk. If future trading falls short, the buyer pays less. They may also offer deferred payments to protect cashflow after acquisition.

The practical impact on Company Valuation is that the “headline multiple” can stay the same, while the real value shifts through structure. A 6x EBITDA deal with 70% upfront cash often feels very different to a 6x deal with 40% upfront and the rest tied to targets.

If you’re negotiating an exit near April 2026, treat the split between upfront, deferred, and earn-out as a valuation topic, not just legal detail. Consult EFC often sees founders win more by tightening terms than by chasing an extra turn of multiple.

Share Sale vs Asset Sale: Which Structure Protects Your Valuation?

The way you structure a deal can change two big things at once: your tax outcome and the buyer’s view of risk. That then feeds straight into Company Valuation, because a buyer adjusts price when they see uncertainty, extra admin, or future liabilities.

In practice, structure is not a legal footnote. It is part of the commercial story you tell, and it can affect what ends up in your bank account. If BADR is in play (and the rate is rising to 18% from 6 April 2026), it is even more important to get the basics right early, not in the final week of completion.

Share sale vs asset sale, why the structure can change both tax and price

Most founders prefer a share sale because it is usually simpler for them personally. You sell your shares, you step away, and you may qualify for BADR if you meet the rules (including the two-year conditions, the 5% tests, and being an officer or employee). A share sale also often gives a cleaner “whole company” exit, which helps when you are thinking about your own net proceeds and timing around April 2026.

Buyers often push for an asset sale for different reasons. In an asset deal, the buyer can pick what they want (contracts, stock, IP, equipment) and leave behind unwanted baggage. That can reduce exposure to historic tax, employment, or legal issues. Depending on the buyer, asset purchases can also offer tax benefits on the buyer side, which makes them more attractive.

Here is the commercial tension: when a buyer takes shares, they often feel they are buying the past as well as the future. As a result, they may:

• Pay less for shares because they inherit more risk.
• Ask for stronger warranties and indemnities, which shifts risk back to you.
• Hold back money in escrow or require a retention, which reduces certainty on day one.

An asset deal can flip the tax and cash story for you. The company sells the assets first, then you extract the cash later (often with a second layer of tax risk, depending on how funds leave the company). That is why the “same price” can mean very different net outcomes.

Practical point: when buyers insist on share warranties, indemnity caps, or escrow, they are changing the economics even if the headline price stays the same.

If you want the best Company Valuation outcome, you need to price the risk transfer, not just the business performance. Consult EFC often sees founders improve net proceeds by tightening warranty scope and limiting open-ended liabilities, rather than chasing a slightly higher headline multiple.

Management buyouts and family succession, when timing and eligibility matter most

Internal deals still count. A management buyout (MBO), a sale to an employee trust route, or a transfer to family can all be a disposal for tax purposes, even though it feels like “keeping it in the family”. That means BADR eligibility and timing still matter, and HMRC will still expect the paperwork to match reality.

The BADR rules are strict on the basics. In many founder-led companies, the two that cause last-minute problems are:

• Two-year qualifying period: you generally must meet the conditions for at least two years up to the disposal.
• Officer or employee requirement: you must be a director or employee of the company (or group) in that period.

So if you step down as a director, move off payroll, or reduce your involvement too early, you can break eligibility right before a planned MBO or succession. The same applies if you reorganise share rights, or if a “helpful” tidy-up changes profit or voting rights.

Good planning here looks boring, and that is the point. Aim for clear evidence, kept up to date, showing you qualify well before any transaction starts:

• Role records: board minutes, service agreements, payroll records, Companies House filings.
• Shareholdings and rights: a clean cap table, share certificates, and updated articles.
• Trading status: management accounts and narrative notes explaining what the company actually does, especially if there is surplus cash or non-trading assets.

Family succession adds another twist. If value is transferred at less than market value, you need to understand what HMRC treats as the consideration. That can affect both the tax result and how you explain Company Valuation to other shareholders, lenders, or incoming management.

Members’ Voluntary Liquidation (MVL) and distributions, where BADR is often discussed

An MVL is often considered when you have finished trading, sold the trade or assets, or you are closing a solvent company and want to extract remaining value in a structured way. Put simply, it is a formal wind-up that can turn what might otherwise be income-style withdrawals into capital distributions, where BADR may be relevant if you meet the conditions.

This is why MVLs come up in exit planning conversations. Owners are not only thinking about the paper value of the business. They are thinking about how much value they can actually extract, after tax and costs, and when that cash reaches them.

However, timeline discipline matters. BADR has eligibility rules, and MVLs also sit in a space where HMRC pays attention to motive and sequencing. If you stop trading, strip cash, and start a new similar business too quickly, anti-avoidance rules can bite. Even where there is a commercial reason, sloppy execution can turn a planned outcome into an expensive one.

Keep it simple and treat it like a project:

1. Get clarity on when trade stops, and what assets remain.
2. Map distributions and key dates against BADR conditions and the 6 April 2026 rate change.
3. Document the commercial reasons for closing, especially if a new venture is planned.

Reality check: Company Valuation is only useful if you can extract the value efficiently. MVL planning is about turning a balance sheet into personal net proceeds, on the right timeline.

Consult EFC helps founders set the timeline early, because the cost of “fixing it later” is usually tax, not admin.

Investment rounds and dilution, how funding today can affect BADR later

Raising investment can be the right move for growth, but it can quietly break BADR. The simplest problem is dilution. If you issue new shares and your holding drops below 5%, you may fail the BADR shareholding tests at exit, even if you founded the company and ran it for years.

It is not only the percentage. Share classes, preference rights, growth shares, and option pools can change who is entitled to profits, assets on a winding up, and sale proceeds. That matters because BADR looks at rights, not just the number on a cap table summary.

Before you sign a term sheet, treat BADR as part of the funding model, not an afterthought. A few practical prompts help:

• Cap table reviews: run a clean cap table that shows ordinary shares, options, convertibles, and fully diluted ownership.
• Pre-funding modelling: test what happens after this round, and after the next round, including option pool top-ups.
• Rights check: confirm whether new share classes change voting, profit, or sale proceeds rights in a way that affects BADR.
• Future-proofing: agree early how you will protect founder incentives, especially if you expect more funding later.

This connects straight back to Company Valuation. A strong valuation in a funding round can feel like “winning”, yet if the structure leaves you outside BADR later, your personal net exit can disappoint. Getting the shape of the equity right early keeps your growth story and your exit story aligned.

Action Plan: Maximising Your Business Valuation Before April 2026

If you might exit in the next 6 to 18 months, treat April 2026 like a fixed milestone in your plan. The BADR rate rise to 18% won’t change how a buyer values your profits, but it can change what you keep, and that can shift your walk-away price.

Good exit outcomes rarely come from last-minute paperwork. They come from simple checks done early, clear evidence, and a business that stands up to buyer scrutiny without drama. The steps below are designed to protect Company Valuation in the negotiation, and protect net proceeds when the deal completes.

The Consult EFC BADR Readiness Checklist for UK Founders

Start with a fast eligibility check. It sounds basic, yet this is where founders often lose relief because something drifted over time (a funding round, a new share class, stepping back from a director role, or the balance sheet filling with non-trading assets).

Use this short checklist and write down the answers in one place:

Then focus on evidence. A buyer will test these points, and HMRC can too. Keep a neat pack of documents (cap table, share rights, Articles, board minutes, payroll records, and management accounts). If something doesn’t quite fit, fix it early, because “we’ll sort it after heads of terms” is how founders get caught out.

Quick rule: if you can’t prove you qualify in a tidy folder, assume you’re not ready yet.

Model the valuation impact in pounds, not percentages, so you can negotiate with confidence

Percentages are easy to ignore, until they hit your bank account. Instead, build a simple net proceeds model in pounds. It helps you set a walk-away price, compare offers, and keep your nerve when a buyer pushes structure changes.

You only need a few inputs:

1. Expected sale price range (for example, low, base, high).
2. Your base cost in the shares (often low for founders, but don’t guess).
3. Your remaining BADR lifetime allowance, up to £1 million of qualifying gains.
4. Tax on the rest of the gain at standard CGT rates, once the BADR slice is used.
5. Deal costs (legal, advisory, and any success fees), because they affect net outcome.

A simple scenario approach often works best. Compare “complete before 6 Apr 2026” with “complete on or after 6 Apr 2026”. The only change might be the BADR rate on the qualifying slice (14% vs 18%), yet that difference can be meaningful when you’re negotiating.

Here’s a quick way to lay it out:

Once you have this, you can negotiate from a clear position. If a buyer wants an earn-out, defers cash, or drags completion into a later date, you can price that change in pounds, not vague “it’s only 4%” talk.

Get your company ‘buyer clean’, because stronger evidence supports a stronger price

Buyers pay more when they trust the numbers and the story. They pay less when they see fog, mess, or surprises. Getting “buyer clean” isn’t about polishing for a sale, it’s about removing the discount a buyer applies for uncertainty.

Prioritise actions that reduce questions in due diligence:

• Tidy management accounts: Ensure monthly figures tie back to bookkeeping, and explain variances in plain English. If you’re adjusting EBITDA, show the working.
• Clear revenue recognition: Align revenue timing with contracts and delivery. If you have deferred income, implementation work, or milestones, make it easy to follow.
• Customer concentration explained: If one client is 30% of revenue, say why, and show retention, contract term, and pipeline strength. Silence makes buyers assume risk.
• One-off expenses cleaned up: Separate genuine one-offs (legal disputes, office moves) from recurring “founder extras”. Buyers won’t add back costs they don’t understand.
• Key contracts in order: Keep signed copies of top customer, supplier, lease, and IP agreements. Note renewal dates, break clauses, and change-of-control terms.
• Tax filings and payroll up to date: Late returns, messy VAT positions, or unclear PAYE treatment create price chips and longer negotiations.
• A simple profit story: Show what drives sustainable profit (pricing, retention, capacity, gross margin), and what you’re doing to protect it.

Think of it like selling a house. The buyer will still survey it, but clean paperwork and fewer cracks in the walls mean fewer excuses to renegotiate.

Talk to Consult EFC early, good planning often takes longer than you think

Exit planning works best when it starts before there’s a deal on the table. That’s because BADR eligibility relies on conditions being met over time, and because improving Company Valuation usually takes a few reporting cycles to show up in the numbers.

Consult EFC supports SME founders who want to grow properly, plan funding sensibly, and exit on terms that hold up under scrutiny. An early review can help you spot BADR risks, build a net proceeds model, and tighten the commercial story buyers will pay for. Most importantly, it reduces last-minute surprises that cost money, time, or both.

How Consult EFC can help

From 6 April 2026, BADR becomes less generous in one clear way: the qualifying CGT rate rises to 18% from 14%. However, the £1 million lifetime cap stays in place, and the eligibility rules remain just as strict. As a result, the difference won’t always show up in a buyer’s headline offer, but it can show up sharply in your personal net proceeds, and that changes the Company Valuation outcome that matters most.

Because BADR only applies to qualifying gains, planning beats guesswork. Check your shareholding and rights, confirm your director or employee status, and protect the two-year qualifying period, especially if you are raising investment, changing share classes, or stepping back day to day. Then model the pounds and pence, so you know what you need to achieve after tax.

If an exit is on your radar, set a clear timeline now and treat deal structure as part of the price. Consult EFC can help you pressure-test eligibility, update valuation expectations, and build an exit plan that fits your goals. Timing is now a commercial decision, not just a tax footnote.