If you’re a business owner thinking about an exit, the tax landscape has shifted significantly in 2026. Business Asset Disposal Relief (BADR) has been reduced again — and for many SME owners, the gap between a trade sale and selling to an Employee Ownership Trust (EOT) has never been more relevant.

Here, we set out what’s changed, how EOTs compare in the current environment, and whether employee ownership might be the right path for your business.

What is Business Asset Disposal Relief (BADR)?

Business Asset Disposal Relief is a UK tax relief that reduces the rate of Capital Gains Tax (CGT) paid by qualifying shareholders when they sell a business. It applies to the first £1 million of qualifying gains. The history of BADR is a long one — it can arguably trace its roots back to 1998 when Taper Relief was introduced, which meant the longer an individual held shares, the less CGT they paid, potentially reducing the rate to 10%.

Taper Relief was removed in 2008 and replaced by Entrepreneurs’ Relief, which allowed most owner-managers to benefit from a CGT rate of 10% on the first £10 million of gains. Then in 2020, Entrepreneurs’ Relief was renamed to BADR and its benefit was significantly curtailed — the 10% rate now only applied to the first £1 million of gains. Higher rate taxpayers paid 20% on any gains above that.

At the time, there was speculation that the change of name — from Entrepreneurs’ Relief to Business Asset Disposal Relief — was intended to make future reductions more politically palatable. That proved to be the case.

BADR in 2026: What Has Changed?

In October 2024, the Chancellor announced a phased increase to the BADR CGT rate: it rose to 14% on 6 April 2025 and has now increased again to 18% from 6 April 2026. At the same time, the standard CGT rate for higher rate taxpayers on gains outside of BADR also rose from 20% to 24%.

In the span of less than five years, CGT rates for most SME owner-managers have increased from 10% to either 18% (within the £1m BADR limit) or 24% (on gains above that). For many business owners, this fundamentally changes the financial case for a trade sale.

How Do Employee Ownership Trusts (EOTs) compare?

Employee Ownership Trusts were introduced in 2014 to incentivise employee ownership, with their own CGT relief that has also evolved over the years.

Initially, selling shareholders paid zero CGT on qualifying EOT sales. For most SME sellers at the time, this meant saving 10% CGT. But when standard CGT rates rose in 2020, many selling shareholders suddenly found themselves saving 20% CGT by choosing an EOT over a trade sale. Demand for EOTs grew significantly — though not always for the right reasons, with some transactions driven more by the tax relief than by a genuine commitment to employee ownership.

By some estimates, the Treasury was losing over £1 billion annually through the EOT CGT relief. We would argue this was balanced by the corporation tax and income tax receipts that employee-owned businesses help sustain — but in November 2025, the Government halved the CGT relief available on EOT sales. Most selling shareholders now pay 12% CGT on an EOT sale, rather than zero.

Where Have These Changes Left Us?

The current position for most UK taxpayers is:

• Trade sale or similar: 18% CGT on the first £1m of gains, 24% on any gains above that.
• EOT sale: 12% CGT on gains.

This means most sellers choosing an EOT save 12% CGT compared to a trade sale — very close to the 10% saving pre-2020. In some respects, we have come full circle. And from 6 April 2026, the saving has actually increased, making EOTs more financially competitive than they were even a year ago.

Why EOTs Remain a Strong Exit Option for Business Owners

Beyond the tax position, EOTs remain an attractive option for selling shareholders who want to:

• Safeguard an independent future for their business;
• Enable employees to share in the future success of the business;
• Retain the culture and values they have built; and
• Exit in a phased way, potentially staying involved during a transition period.

And while achieving all of the above, they also pay less CGT than they would in a trade sale — a saving that has just increased from 6 April 2026.

That said, the CGT relief should never be the primary motivation for an EOT transition. You need to be genuinely satisfied that employee ownership is the right model for your business — irrespective of tax benefits.

Is Employee Ownership Right for Your Business?

Employee ownership isn’t the right answer for every business or every business owner. But for those who care about what happens to their business — and their people — after they step back, an EOT is worth serious consideration.

At Baxendale Employee Ownership, we work with business owners exploring whether employee ownership is the right path. That means honest conversations about fit — not just tax advantages. We’ve helped over 300 businesses transition into employee ownership, and we’re the UK’s leading specialist advisors on EOTs.

How Baxendale Employee Ownership Can Help

If you’d like to understand what an EOT transition might look like for your business — and whether it genuinely makes sense — we’d be happy to talk it through with you. There’s no obligation, just an honest conversation.

Get in touch with us here or call us on 020 3598 9982.