BADR just hit 18%. Here's what that means for your exit

Two years ago, a founder selling a qualifying business could pay 10% Capital Gains Tax on the first £1 million of gains through Business Asset Disposal Relief. That rate climbed to 14% last year. From 6 April 2026, it sits at 18%. The same £1 million gain that cost £100,000 in tax three years ago now costs £180,000.

That is an 80% increase in your tax bill on the same transaction. If you are building towards an exit — whether that is a trade sale, management buyout, or Series A secondary — the maths has changed fundamentally.

The mechanics remain the same: BADR applies to qualifying disposals of business assets up to a £1 million lifetime limit. You need to have held at least 5% of the shares and voting rights for two years. The company must be a trading company. But the headline benefit has been gutted. At 18%, BADR is now identical to the lower rate of standard CGT. The relief has become largely symbolic for basic-rate taxpayers.

For higher-rate taxpayers, there is still a gap — standard CGT sits at 24% — but the incentive to hold qualifying shares has narrowed considerably. Add in the frozen annual exempt amount of just £3,000 and the picture gets worse for any founder sitting on significant paper gains.

Carried interest holders face an even sharper adjustment. From April 2026, qualifying carried interest is taxed under income tax at an effective rate of 34.1%, up from the previous CGT treatment. If you run a fund or hold carry in a venture portfolio, the economics of your compensation structure have shifted overnight.

What can you do? First, review your disposal timeline. If an exit is on the horizon, the difference between completing before and after a future Budget could be material. Second, explore whether share reorganisations or holdover relief elections can defer gains. Third, ensure your EMI option scheme is correctly structured — EMI shares still qualify for BADR at the prevailing rate, but only if the scheme meets every HMRC requirement.

The trend is clear: relief rates have moved in one direction for three consecutive years. Planning on the assumption that 18% is the floor, not the ceiling, is the prudent approach.

Stertha Advisory works with founders at every stage of the exit journey. If you are planning a disposal in the next 12-24 months, a conversation now could save you tens of thousands. Book a consultation.