The maximum capital gains tax (CGT) saving on a gain of £1m with the current rate of business asset disposal relief (BADR) of 14% (for 2025/26) is £100,000.

When the rate increases to 18% from 6 April 2026, the maximum saving reduces to £60,000.

Then and Now…

Take the situation of a private trading company owned 50:50 by husband and wife. They received an offer for the sale of the company of £1m. Typically, the shares will have been acquired at nominal value, so practically one hundred per cent of the proceeds will be liable to CGT.

Assuming that the conditions for BADR are met for both husband and wife, the CGT payable is circa £140,000 on a disposal prior to 6 April 2026 and £180,000 on or after that date. Of course, at this level, they will not make full use of BADR, but the figures are merely illustrative.

Group Structures

Suppose, however, the trading company is owned indirectly by a holding company which they had set up at least 12 months earlier. They then have the option of selling the trading company out of the holding company. The gain on sale should automatically be exempt from tax because of the capital gains substantial shareholdings exemption (SSE).

They could then either liquidate the holding company and claim BADR, or they could each draw £50,270 per annum as dividends, of which £12,570 is covered by the personal allowance, leaving £37,700 liable to the dividend basic rate at 10.75% (increased from 8.75% after 5 April 2026). With an annual tax liability of around £4,000 each, therefore, the £1m would be fully withdrawn in just under ten years at a total tax cost of around £80,000 spread over that period. This compares rather well to CGT of £140,000 or £180,000 payable up-front on a direct sale of the trading company.

Of course, these are matters of ‘horses for courses’, but a group structure may provide some flexibility in structuring the closure or sale of the business, due to the availability of SSE, as well as potential commercial benefits in protecting assets in the holding company in case of claims against or failure of the trading company. Surplus cash could potentially be used to fund other ventures via the holding company, which otherwise might not appeal to a purchaser of the trading company and might need to be extracted prior to sale.

While not mandatory, HMRC clearances would be advisable for the purposes of the CGT reconstruction provisions and the income tax transactions in securities legislation. These broadly require that the share exchange to form the group is carried out for commercial (not tax avoidance) purposes, so this is a long-term strategy ideally in place long before any sale of the business is contemplated.

Post-Sale Dividends

A drawback of drawing out cash following the sale as dividends is that this does not make full use of the personal allowance, as relief is only at an effective rate of 10.75% (from 6 April 2026) instead of 20%. If the couple has a pension or other income, that may make better use of the personal allowance, though it would take longer to fully draw down the cash as dividends while keeping within the basic rate. So, when the time comes to sell the trading company, there will be choices to make as to the optimum strategy, but at least the structure outlined helps to provide options that would not be available in the case of a ‘singleton’ company.

Practical Tip

As an alternative to interposing a holding company, SSE may also be available if the company were to form a dormant subsidiary (12 months before any sale is in the offing). This could be used to hive down the trade (if commercially possible) to the dormant subsidiary before the sale of the subsidiary, which may also be preferred by the purchaser. Expert professional advice should be sought before taking any action.