Selling Shares in Your Own Company: BADR, Valuations and Sales to Family in 2026/27

Business Asset Disposal Relief, still called Entrepreneurs' Relief by many owners, has lost the famous 10% rate. The Autumn 2024 Budget changes are now fully in force: disposals between 6 April 2025 and 5 April 2026 were taxed at 14%, and disposals on or after 6 April 2026 are taxed at 18% (GOV.UK). The lifetime limit has been £1 million of qualifying gains since 11 March 2020, and it counts every BADR claim you have ever made, including old Entrepreneurs' Relief claims against the former £10 million limit (HS275, GOV.UK).

Is BADR still worth having? Yes, but the arithmetic has changed. For a higher-rate taxpayer the saving is now 6 percentage points, 24% down to 18%, so the maximum benefit on a full £1 million of gains is £60,000; under the old 10% rate the same claim saved £140,000. Gains inside an unused basic rate band are already taxed at 18% (GOV.UK), so BADR adds nothing on that slice; it protects what would otherwise be taxed at 24%.

The limit is £1 million of gains, not sale proceeds. If your base cost is low, as it usually is for founders who subscribed at par, proceeds of a little over £1 million can exhaust the limit in one transaction. Anything above it is taxed at 18% or 24% in the normal way; the £3,000 annual exempt amount shelters the first slice of total gains (GOV.UK).

For a straightforward sale of shares, all of the following must be satisfied throughout the period of two years ending with the date of the disposal (CG63975, HMRC).

Three practical points. First, the economic limbs were added from 29 October 2018 precisely to catch alphabet share structures carrying votes but a sliver of the economics, so check your articles and any shareholders' agreement, not just the cap table (HS275, GOV.UK). Second, officer or employee is a low bar but a real one: a non-executive directorship counts and there is no minimum hours test, but resigning a year before completion breaks the two-year run. Third, these are statutory conditions and HMRC has no discretion to extend a statutory period, so a fortnight short of two years is a failed claim, not a rounding error.

Dilution is the classic silent killer. A funding round that takes a founder from 5.5% to 4.8% ends BADR qualification from that moment. There is a statutory fix for dilution caused by a relevant issue of new shares: an election treating you as having disposed of and reacquired your shares at market value just before the dilution, banking relief on the gain to that date, with a further election to defer that gain until you actually sell (HS275, GOV.UK). Both elections have conditions and deadlines, so if a round is coming, take advice before it completes, not after.

A question we hear constantly: can I claim BADR on a 2% or 3% holding I have had for years? For ordinary shares, no. The 5% tests are a cliff edge, not a slope, and 4.9% held for a decade gets nothing while 5% held for exactly two years gets the full relief. Length of service and seniority do not substitute for the percentages.

The one important exception is EMI. Shares acquired by exercising qualifying Enterprise Management Incentive options are outside the personal company tests altogether: GOV.UK applies the 5% requirements only to shares that are not from an EMI scheme, and for EMI shares requires instead that the option was granted at least two years before you sell (GOV.UK). An employee exercising EMI options can therefore reach the 18% rate on a fraction of a percent, one reason EMI remains the default equity tool for UK private companies. If your equity story crosses borders, or involves US style awards rather than EMI, the interaction is messier: our guide to share options and equity awards across borders covers that ground.

If you are under 5% and no EMI shares are involved, the planning question becomes whether the position can properly be fixed more than two years before an exit, for example by acquiring further shares or restructuring share rights: legitimate if done in real time and reflected in real rights, useless if attempted the year the buyer appears.

Passing shares to the next generation, or selling them into a family investment company, feels like a private matter with a private price. For CGT it is not. Where a disposal is between connected persons, or is otherwise not a bargain at arm's length, including any gift, the consideration is deemed to be the open market value of the shares on the date of disposal, whatever was actually paid (CG14530, HMRC). Connected persons include your spouse or civil partner, children, parents, siblings and their spouses (CG14580, HMRC), and a company is connected with you if you control it, alone or together with persons connected with you (CG14620, HMRC). A sale of your shares to your son for £100,000, or to a family investment company for £1, is therefore taxed as if you had received full market value, and the buyer's base cost is set at the same figure.

Market value here has a statutory meaning: the price the shares would fetch in a sale on the open market between a hypothetical willing seller and a hypothetical willing buyer (SVM107090, HMRC). Crucially, what is valued is the actual holding transferred, not a pro rata slice of the company. Valuation case law recognises discounts from whole-company value for minority holdings and for unmarketability, though HMRC's manual treats the size of any discount as a question of evidence in each case, not a fixed rule of law (SVM113030, HMRC). In practice a small minority stake is usually worth substantially less per share than a controlling one, which can sharply reduce the deemed proceeds on a gift.

The figure can be tested: after the disposal, and before your filing deadline, you can ask HMRC's specialist Shares and Assets Valuation team to check your valuation on form CG34. SAV aims to agree a valuation within four weeks of a complete request, and where they disagree they propose an alternative figure and negotiate (GOV.UK). For any sizeable family transfer we regard a professional valuation, contemporaneous evidence for any discount, and usually a CG34 check as the cost of sleeping at night. A gift or sale at undervalue can also raise inheritance tax questions: see our guides to CGT on gifts and family transfers and business property relief.

One pressure valve exists for gifts: where holdover relief is not available in full, the CGT on a gift of unlisted shares, or of a controlling holding, can be paid by ten equal yearly instalments by written election, though interest runs on the unpaid balance and the whole amount falls due if the recipient sells (CG66452, HMRC).

Every CGT computation starts with base cost, and in family companies the shares often arrived by gift, inheritance or an earlier reorganisation rather than by purchase.

The holdover trap deserves emphasis. Gifts of unquoted trading company shares commonly travel with a joint holdover claim under helpsheet HS295, so no CGT is paid at the time. The deferral is paid for later: the recipient's acquisition cost is reduced by the amount of the held-over gain, so the deferred gain resurfaces in their computation when they eventually sell (HS295, GOV.UK). We regularly meet second-generation shareholders who discover mid-sale that an old holdover election has quietly preserved a 1980s base cost. Dig out the old claims before you sign heads of terms. On a sale at undervalue with holdover, only the balance of the gain is held over: the seller pays tax on the excess of the actual price over their own allowable cost.

Death, by contrast, is the great rebaser: assets passing to personal representatives are deemed acquired at market value at the date of death (CG30730, HMRC), so inherited shares carry a fresh base cost and any held-over history is wiped. Whether shares should be gifted in lifetime or left on death is therefore a live CGT versus inheritance tax trade-off.

Most company sales now include deferred consideration, and the CGT treatment depends on one question: was the future amount ascertainable on the day you sold? If the deferred payments are fixed or calculable at completion, the full amount goes into your disposal proceeds up front and there are no further tax consequences when the cash arrives (CG14881, HMRC). You can be taxed in year one on money you receive in year three: uncomfortable, but simple.

A true earn-out, where payments depend on future profits and cannot be known at completion, works differently. The right to receive the future payments is itself an asset: it is valued at completion, that value goes into your disposal proceeds, and then each later payment is treated as a disposal or part disposal of the right, producing a further gain or loss against the value originally brought in (CG14970, HMRC). The sting is explicit in HMRC's manual: relief claimed on the original share disposal, including Business Asset Disposal Relief, does not extend to these later disposals of the earn-out right. Your BADR rate covers the completion-day value of the earn-out right, not the upside beyond it.

Where the earn-out is satisfied in shares or loan notes of the buyer rather than cash, a different regime applies automatically: the earn-out right is treated as a security of the purchasing company, rolling the gain forward until the shares or notes are eventually disposed of, unless you elect for that treatment not to apply (CG58005, HMRC). Whether to accept the rollover or elect out belongs in the negotiation phase, not the January after completion. Earn-outs also raise employment income questions where payments are linked to the seller staying on, which is beyond this outline: take advice before the sale and purchase agreement is signed.

Working backwards from completion: more than two years out, fix the structure. Confirm the 5% tests against the articles, deal with any dilution risk, sort out spouse transfers if both of you are to claim BADR (each spouse needs to satisfy the conditions in their own right, including the two years), and dig out the history that sets base cost: subscription documents, old gift and holdover claims, probate values.

In the months before the deal: keep every condition running until completion. Do not resign as director early, do not let the company drift into holding surplus investments that could compromise trading status, and model the numbers, including whether any remaining lifetime limit is available from earlier claims. If the sale is to a connected party, commission the valuation now and build the evidence for any minority discount.

After completion: report and claim. For a connected-party disposal you can put the valuation to HMRC on form CG34 after the disposal and before your filing deadline (GOV.UK). The gain goes on the capital gains pages of your Self Assessment return for the year, and the BADR claim must be made by the first anniversary of the 31 January following the tax year of disposal, which for a 2026/27 sale means 31 January 2029 (HS275, GOV.UK). If the sale is part of leaving the UK, sequencing is everything: residence, the temporary non-residence rules and any decision about closing the company instead of selling it should be settled before completion, because a disposal in the wrong tax year cannot be moved afterwards.

This is core work for us: BADR condition reviews before a deal, CGT computations on sales and gifts of private company shares, base cost reconstruction where the paper trail runs through old gifts and holdover claims, connected-party disposals with valuation evidence and CG34 checks, and the earn-out and leaving-the-UK questions that ride along with an exit. We coordinate with your solicitor and valuers where a formal valuation is needed, and handle any correspondence with HMRC Shares and Assets Valuation as part of the engagement, not as a surprise extra.

Everything is on a fixed fee agreed upfront, so the cost is known before you commit: personal returns from £350, non-resident and expat work from £550, and complex advisory work such as share disposals, connected-party valuations and earn-outs from £750, scoped to your facts. If a sale, gift or restructuring is on the horizon, the cheap insurance is a conversation more than two years before completion. Book a free 30-minute clarity call, read about how we work with clients, or see our Self Assessment service for the reporting side once the deal is done.