How Do I Reduce Capital Gains Tax on a Business Sale?

The way to reduce Capital Gains Tax (CGT) on selling a business is almost entirely about planning ahead. By the time you shake hands on a price, most of the levers are already fixed, the meaningful savings come from decisions taken a year or more before completion. The goal is not to dodge a legitimate bill, but to make sure you claim every relief and allowance you are entitled to. This is general information, not personal advice.

It helps to remember that CGT is charged on your gain, broadly the price less what you paid or invested and less allowable costs, not on the whole sum you receive. In 2026 the standard rates are 18% within your basic-rate band and 24% above it, so every relief that shaves the taxable gain or holds it at the lower rate is worth real money. Our fuller answer on Business Asset Disposal Relief covers the headline break in detail.

The main levers, in order of impact

• 1

  Secure Business Asset Disposal Relief (BADR)

  This holds the CGT rate at 18% on your first £1m of qualifying lifetime gains. You must be an officer or employee owning at least 5% of a trading company for two years before the sale, so protect it early.

• 2

  Use both spouses’ allowances

  The £1m BADR limit and the £3,000 annual exemption apply per person. A spouse who genuinely owns qualifying shares and meets the conditions can double the relief, but they must be on the register in good time.

• 3

  Claim your annual exempt amount

  The first £3,000 of gains each year is tax-free. Splitting a disposal across two tax years can capture two years’ exemptions and, in some deals, more of the lower-rate band.

• 4

  Offset capital losses

  Losses on other assets, investments, a previous venture, can be set against the gain, reducing the taxable figure pound for pound.

• 5

  Make pension contributions

  Paying into a pension in the years around a sale, within your £60,000 annual allowance plus carry-forward, gives after-tax proceeds a tax-advantaged home and can reduce income-tax exposure elsewhere.

• 6

  Keep the balance sheet clean

  Surplus cash or investment property can make a company look non-trading and jeopardise BADR. Tidying it up, well before a sale, protects the relief.

The recurring theme is the two-year rule behind BADR. Restructure, bring in a new shareholder, or clean up the company too close to completion and the relief can be lost entirely. This is why owners who start planning two to three years ahead consistently keep more of their proceeds than those who rush. The same is true of the deal structure: a share sale keeps the whole gain in the capital-gains regime, whereas extracting cash as a large final dividend or bonus before completion is taxed as income at up to 39.35% or 45%, far more than the CGT you were trying to reduce.

A worked example

Suppose you and your spouse each own qualifying shares and together realise a £1.2m gain, with neither of you having used any BADR limit:

• Each of you deducts a £3,000 exemption, £6,000 tax-free between you.
• The whole gain sits within your combined £2m of BADR limits, so it is taxed at 18%.
• CGT is roughly £215,000, an effective rate of about 18%.
• Held solely in one name above the £1m limit, the excess would be taxed at 24%, costing several tens of thousands more.

Don’t stop at the sale

Reducing the CGT is only half the job. Once the money lands it becomes cash in your estate, often replacing an asset that qualified for inheritance tax relief, so the after-tax proceeds need investing and managing as part of your wider plan. It is worth reading this alongside our guide to personal tax planning and thinking about reducing inheritance tax on a suddenly larger estate.

Because the sums are large and the rules interact, coordinating an accountant, a solicitor and a financial planner before completion is where the real value lies. The free Vetted Wealth service matches you with an independently vetted, FCA-regulated adviser through business exit and succession planning, with local hubs across Devon and Cornwall. This is information and a matching service, not personal advice; tax treatment depends on your circumstances and can change, and investments can fall as well as rise.

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