29th October 2026
From garages and shops to family businesses built up over a lifetime, a change to Capital Gains Tax relief could leave some owners with less money when they sell up or retire.
For many small business owners, selling a business is not simply a commercial transaction. It may represent the reward for decades of hard work, long hours, financial risk and years of reinvesting profits rather than taking money out of the company.
But changes announced by the Chancellor could mean that some owners will pay more tax when they eventually sell their business.
The change concerns Business Asset Disposal Relief, a tax concession designed to reduce Capital Gains Tax on qualifying business disposals. From 6 April 2027, the lifetime limit on gains eligible for the relief is being cut from £1 million to £500,000.
For business owners in Caithness and Sutherland, the implications are worth understanding now, particularly for those approaching retirement or considering selling a company they have spent years building.
What is Business Asset Disposal Relief?
Business Asset Disposal Relief, previously known as Entrepreneurs' Relief, is intended to make it more tax-efficient for people to sell qualifying businesses or shares in their own companies.
When somebody sells a business for more than it cost them to acquire or establish, the difference may be subject to Capital Gains Tax. This is the gain, not the full sale price.
The relief allows qualifying gains to be taxed at a special rate, subject to eligibility conditions and a lifetime limit.
The Government has already increased the applicable rate from 14% to 18% for disposals made from 6 April 2026. The new reduction in the lifetime limit will take effect a year later, on 6 April 2027.
That means business owners face two separate changes: a higher tax rate on qualifying gains and a lower limit on how much gain can benefit from the relief.
How much difference could it make?
Consider somebody who has built up a successful business over many years and is now planning to sell it.
Suppose the sale produces a taxable gain of £750,000. This is the profit for Capital Gains Tax purposes after taking account of the relevant acquisition costs and allowable deductions, rather than the amount the buyer pays for the business.
Under the previous £1 million lifetime limit, the entire gain could potentially qualify for Business Asset Disposal Relief, assuming the owner had not previously used the relief and met all the necessary conditions.
Under the new £500,000 limit, only £500,000 of the gain could qualify. The remaining £250,000 would be subject to the applicable ordinary Capital Gains Tax rate.
Using an illustrative rate of 24% for that remaining gain, the tax on it would be £60,000. If the entire £750,000 gain had qualified at 18%, the tax would have been £135,000. Under the new arrangement, the combined bill would be £150,000, assuming all other relevant factors remained unchanged.
That is an additional £15,000 in this example.
The actual bill will depend on the owner's circumstances, previous claims, the nature of the business and the tax rules applying at the date of disposal. The example illustrates the effect of the lower limit rather than predicting the bill for any particular business.
For a smaller business sale producing a gain below £500,000, the reduction in the lifetime limit may make no difference at all, although the higher qualifying tax rate can still matter.
Which local businesses could be affected?
The change could be relevant to owners of independent shops, garages, engineering firms, building contractors, hotels, restaurants and other qualifying trading businesses.
It may also affect people who own shares in a company they have helped build up.
Imagine a family business in Wick or Thurso that has grown steadily over 30 years. Its owners may have invested their savings, employed local people and expanded the business without drawing out all the profits.
When they eventually sell, the proceeds may be needed to provide retirement income, repay borrowing or help the next generation buy a home.
For such owners, the difference between the sale price and the amount left after tax can be significant.
However, not every business sale qualifies for the relief. There are specific rules concerning ownership, trading activities and the period for which the business or shares have been held. A property investment business, for example, will not normally qualify simply because it has been operated for many years.
Could owners bring forward their retirement plans?
One possible consequence is that some owners will consider selling before April 2027, when the lower lifetime limit takes effect.
That does not mean a rush of sales is inevitable. Selling a business requires finding a buyer, agreeing a price, completing due diligence and dealing with legal and financial arrangements. Those processes can take months or longer.
Nor would it necessarily make commercial sense to sell early. A business owner who accepts a lower price simply to save tax could end up worse off.
There are also detailed rules governing contracts and transactions around the change. Owners should not assume that signing an agreement before the deadline will automatically secure the previous treatment.
Anyone considering a sale should obtain professional tax advice well before making commitments.
What about passing a business to the next generation?
Some owners may prefer to transfer a business to children or other family members rather than sell it to an outside buyer.
That can be an attractive way to preserve a family enterprise, but it is not automatically a tax-free alternative. Transfers, gifts and inheritance can raise separate tax questions, and the rules governing Capital Gains Tax reliefs are not necessarily the same as those governing Inheritance Tax.
A decision about succession should therefore consider the family's circumstances, the future of the business and the tax consequences together.
The Government's case and the business owner's concern
There is a public-finance argument for restricting tax relief. Business Asset Disposal Relief reduces the tax collected on qualifying gains, and lowering the lifetime limit narrows the amount of profit that can benefit from the concession.
The Government can argue that tax relief should be limited and that business owners making larger gains can afford to contribute more.
But owners may see the issue differently. They may argue that building a successful business involves years of uncertainty, personal financial exposure and responsibility for employees. The prospect of a higher tax bill at the point of sale may influence decisions about retirement, reinvestment or succession.
Whether the change will significantly affect investment or the number of businesses sold remains uncertain. Its effects will differ according to the size of the gain and the circumstances of each owner.
A reminder to plan ahead
For most small business owners, the immediate priority is not to panic but to understand the rules.
Those expecting to sell a qualifying business should establish how much of their lifetime allowance they have already used, estimate the likely taxable gain and discuss the timing of any disposal with a qualified tax adviser.
The new rules will not affect every owner equally. Some will never approach the £500,000 limit, while others may find that a substantial part of the value they have built up over a lifetime no longer qualifies for the special rate.
For communities such as Caithness and Sutherland, where independent businesses help sustain town centres, provide employment and supply essential local services, the issue deserves attention.
A business may be worth a great deal on paper, but its owner only discovers how much of that value can be retained when the sale is completed and the tax bill arrives.
For anyone hoping to sell up and retire in the next few years, April 2027 is a date worth putting in the diary.
This article provides general information, not individual tax advice. Business owners should check the current rules and seek professional advice before making decisions about selling or transferring a business.
Further information: GOV.UK – Business Asset Disposal Relief.
https://www.gov.uk/business-asset-disposal-relief