Capital Gains Tax on Business Disposals: Assets, Gifts, and Planning Around a Sale

By Carolyn Burchell  |  Correct as of August 2026

In our last post we covered the headline changes to Capital Gains Tax and Business Asset Disposal Relief (BADR) that took effect on 6 April 2026, along with the core conditions for qualifying and what the new rate means in money terms on a typical sale. If you have not read that one yet, it is worth starting there for the basics.

This post picks up where that left off. Not every asset in a business sale is treated the same way, family gifts and transfers bring their own rules, and there are planning options and pitfalls worth knowing about well before you sell. Here is what to look out for.

On this page

•  Shares, goodwill, and property

•  Gifts and transfers between connected parties

•  Restructuring, reinvestment relief, and employee ownership trusts

•  The interaction with income tax on exit

•  Frequently asked questions

Shares, Goodwill, and Property: Different Rules for Different Assets

Business Asset Disposal Relief does not treat every asset in a sale the same way. Shares, goodwill, and property each have their own rules, and getting them mixed up is one of the more expensive mistakes we see.

Goodwill on Incorporation

Selling shares in your trading company is usually the most straightforward route for BADR, provided the qualifying conditions covered in our last post are met. Goodwill is treated differently, especially on incorporation.

Since 3 December 2014, goodwill disposed of to a close company (fewer than five participators) has generally been excluded from BADR where the seller, together with people connected to them, retains the relevant interest in that company immediately afterward, which is exactly the position on a typical incorporation where you keep running the company you sold into. See HMRC’s manual on this exclusion. In practice this means most sole traders and partnerships incorporating and selling goodwill to their own company will not get BADR on that goodwill, and the gain is taxed at the standard 18% or 24% rate instead, regardless of how carefully the goodwill is valued.

There are two specific carve-outs worth knowing. BADR may still apply if the transfer to your own company is genuinely a step on the way to selling the company on to an independent new owner, provided that onward sale happens within 28 days of incorporation, or a longer period if HMRC agrees. It may also still apply if you and anyone connected to you end up holding less than 5% of the shares, voting power, distributable profits, and winding up rights in the new company.

The company’s own position is separate again: corporation tax relief for amortising goodwill bought from a related party was withdrawn in 2015 and only partially reinstated in 2019, and related party incorporations remain excluded even under the newer rules. Selling goodwill to a genuinely unconnected third party buyer takes it outside the related party restriction on your side as seller, but the buyer still has to meet its own conditions under the 2019 rules to get corporation tax relief.

Property: Letting Versus Occupying

Property is another area where Business Asset Disposal Relief needs its own explanation, because the distinction that matters is not simply whether something is labelled an investment. HMRC’s long standing position, upheld repeatedly at tribunal, is that receiving rent from letting property is an investment activity for BADR purposes, even where the letting is run as a proper business with staff and systems behind it. Running a business and running a trade are not the same thing, and the receipt of rent does not turn a landlord into a trader, however actively the letting is managed.

What matters is letting versus occupying. Property your trading company occupies and uses itself, its own premises, does not count against it at all. The trigger is letting the property to someone else for rent: a company trading from its own warehouse is fine, but the same company letting out a spare unit to a third party has just created a slice of investment activity that gets weighed in the trading test alongside everything else.

Property Trading Versus Property Investment

This trading versus investment test for BADR purposes is not something that only applies to companies. It applies equally to a sole trader, a partnership, or a company, so a family property partnership that simply holds and lets property is treated the same way: as investment, not trading, however long it has run or how actively it is managed.

Property development and dealing are a different matter again, and it is worth not writing off every property business as automatically outside BADR. A business that buys land or property with a genuine view to developing or selling it on for profit may be trading like any other business, and BADR may apply if the other conditions are met. What separates a trading property business from an investment one is not the presence of property at all, but the same badges of trade HMRC applies more generally to any business: the frequency of transactions, the intention at purchase, and whether the property is held as stock to be sold rather than as a long-term asset to be let.

Furnished Holiday Lets

Furnished holiday lets used to be an exception worth knowing about for Business Asset Disposal Relief. Until 6 April 2025, they were treated as if they were a trade for CGT purposes and could qualify for BADR. That special treatment was abolished from 6 April 2025 for individuals, and 1 April 2025 for companies, so furnished holiday lets are now taxed the same way as any other letting business: as investment, not trading.

Cash Reserves

Cash sitting in the company beyond what the business genuinely needs to trade is another area HMRC looks at closely when assessing BADR eligibility. Many owners have wanted to hold a bigger buffer since the pandemic, and that instinct is understandable, but HMRC does not accept general caution as a reason on its own.

The reserve must be shown as genuinely needed for the trade, ideally with some evidence of why it is held at that level, rather than simply being a precaution. Without that, a large cash balance built up just in case may point towards non-trading activity and count against the trading test, particularly where it is retained long term or actively invested rather than earmarked for the business.

There is a useful distinction here between temporary and long-term cash. A balance that has built up temporarily, for example after selling a property while you wait to reinvest in another one for the trade, is generally treated more sympathetically than cash that has simply accumulated over the years and is sitting there as an investment in its own right.

Mixed Activities

There is also a wider Business Asset Disposal Relief point for companies with mixed activities. If the company’s non-trading activities become substantial, this may put the disposal’s BADR eligibility at risk. HMRC does not look at the balance of assets alone when deciding whether a company is trading or investment. Turnover, expenses, and the time management spend on each type of activity are all weighed together, so a company may fail the test even where its investment assets look modest against the total balance sheet. This is worth reviewing well ahead of any planned sale.

Gifts and Transfers Between Connected Parties

Transfers Between Spouses

Transfers between spouses or civil partners who are living together are treated as no gain, no loss for CGT purposes, which opens up genuine planning opportunities, such as splitting a shareholding before a sale to make full use of two people’s allowances and thresholds. Different rules may apply after separation, so this is worth checking if your circumstances have changed.

Using a spousal transfer to double up on BADR needs care, though. The receiving spouse must meet the BADR conditions in their own right, including the two year holding period and being an officer or employee of the company, not simply receive the shares and expect the relief to follow automatically. The transfer also dilutes the original shareholder’s percentage, which is worth checking against the 5% threshold before it is made.

It helps to be clear about what does and does not carry over. The receiving spouse takes on the transferring spouse’s original purchase price for calculating the gain, since that is what a no gain, no loss transfer means, but they do not take on the transferring spouse’s ownership period for BADR purposes. The two-year clock for BADR starts again from the date of the transfer.

Gifts to Children and Other Family Members

Gifts of business shares or assets to anyone else, including adult children, are a different story from the spousal case above. HMRC treats a gift as a disposal at market value even though no money has changed hands, which means CGT may become due on an asset you gave away for nothing.

Where the person receiving the gift also works in the business, for example a child who is already an employee, there is an extra layer to check. Shares given by an employer, or by someone connected with the employer, are automatically treated as employment related securities (ERS), which can bring income tax and National Insurance into play instead of straightforward capital treatment.

There is an exception where the gift is made in the normal course of a family or personal relationship, and HMRC’s own guidance confirms this clearly covers a parent handing shares to their children simply because they are their children, even if those children also work in the company. It is still a question of fact, though, not an automatic pass. If the gift looks more like a reward for their role than something driven by the relationship, the shares may still be taxed as employment income, so it is worth being able to show, and ideally document, that the gift would have happened regardless of the job.

Holdover Relief

Where the asset being gifted is a qualifying business asset, holdover relief can defer that charge. No CGT is due at the point of the gift, the recipient takes on your original base cost, and tax is only calculated when they eventually sell. Both of you need to make a joint claim, because family succession done informally is one of the more expensive mistakes we see. Where holdover relief is claimed, HMRC also operates a procedure allowing the asset’s valuation to be deferred rather than agreed at the point of the gift, which avoids both parties being forced into a costly valuation exercise upfront in many full holdover cases.

Family gifts and transfers get complicated quickly, and the wrong order of events can be expensive to unwind. If a gift, transfer, or succession plan is on your mind, book a discovery call and we will walk through the right structure for your situation before anything is signed.

Restructuring, Reinvestment Relief, and Employee Ownership Trusts

It is essential to consider these options before a sale is imminent. The table below gives a quick shape of how the main reliefs compare before we go through each in turn.

Employee Ownership Trusts

Selling a controlling interest in a trading company to an Employee Ownership Trust (EOT) used to be entirely free of CGT. That changed in the Autumn 2025 Budget: for disposals on or after 26 November 2025, only 50% of the gain is exempt, and the remaining 50% is taxed at the standard rates with no BADR or Investors’ Relief available on that taxable portion. For a higher rate seller this still works out at an effective rate of around 12% on the whole gain, which remains attractive, but it is a materially different proposition from the fully exempt route that existed before.

EIS and SEIS Reinvestment Relief

Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) reinvestment relief work differently from each other, not just from BADR. EIS deferral relief postpones the tax by allowing you to roll a gain into new qualifying shares until those shares are later sold. SEIS reinvestment relief works differently again: rather than deferring the gain, it may exempt up to half of the qualifying reinvested amount outright, subject to its own conditions and limits. Both come with strict qualifying rules, and connected party restrictions are a common trip point for each, broadly around reinvesting into a company you or your associates already control, so this is not simply a case of rolling proceeds into your next venture if that venture involves the same people.

Restructuring Ahead of a Sale

Restructuring ahead of a sale, for example separating trading and investment activities or putting the right holding company arrangement in place, may protect BADR eligibility that might otherwise be at risk. This kind of planning needs years of lead time, not weeks, so the earlier the conversation happens, the more options stay open.

The Interaction With Income Tax on Exit

Selling shares is usually taxed under CGT rules, which is why a share sale is currently more tax efficient than selling the underlying business assets and then extracting the proceeds as a distribution, in most instances.

The Phoenixism TAAR

One trap worth knowing about is the Targeted Anti-Avoidance Rule (TAAR), an anti avoidance rule that targets what is also known as phoenixism. It is not automatic just because you wind up a company and start a similar trade within two years, though that is the condition people usually hear about. HMRC also needs to show that a main purpose of the winding up was avoiding or reducing income tax, alongside the other conditions around the company and your interest in it.

Where that purpose test is met, HMRC may tax the distribution as income, at rates of 35.75% for a higher rate taxpayer and up to 39.35% at the additional rate (see GOV.UK on dividend tax rates), rather than as a capital gain. The TAAR is aimed specifically at distributions made on a winding up, so a genuine sale to a third party generally sits outside it. HMRC has made clear, though, that it will still apply the TAAR where a sale is used as an artificial route to the same outcome, for example turning a company into a cash shell and selling it to someone who immediately liquidates it and passes the proceeds back to you. The substance of the transaction matters more than its legal form, so any exit that might look like a workaround needs timely advice.

Winding Up and Liquidation

There is also a practical point on how a winding up itself is carried out. If total distributions exceed £25,000, informal striking off is not enough to secure capital treatment. You need a formal Members’ Voluntary Liquidation through a licensed insolvency practitioner. Below that threshold, an informal winding up may still qualify. We offer an informal winding up service for businesses below the £25,000 threshold, and where a formal Members’ Voluntary Liquidation is needed, we work with a trusted group of licensed insolvency practitioners to handle the process.

Where there is no buyer for the business as a going concern, or you simply want to close it down and extract the value, winding the company up through a Members’ Voluntary Liquidation is a legitimate alternative to a trade sale. The same BADR conditions apply, and so does the phoenixism TAAR if a similar trade is picked up again afterward.

Pre-Sale Dividends

The same principle applies to dividends taken in the run up to a sale, which is also where your salary and dividend strategy in the years before a sale can matter (see our Salary vs Dividends guide). Stripping out surplus cash via a pre-sale dividend rather than leaving it in the price is common, and it may genuinely help the trading company test by bringing the cash balance down before the disposal. It is rarely a tax saving, though. The dividend is taxed at income tax rates, 35.75% for a higher rate taxpayer and 39.35% at the additional rate, well above the BADR rate, so this is a balance sheet tool rather than a way to cut the overall bill.

Frequently Asked Questions

What to Do Next

Between this post and our last one on the headline rate changes, that covers the areas we see catch business owners out most often. But every sale, gift, or restructuring is different, and the reliefs above only help if the details are right.

We work with business owners at every stage of this, from early structuring through to the sale itself. If a sale, gift, or succession is somewhere on your horizon, book a discovery call and we will talk through what it means for you specifically.

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