5 Mins
Written by: Shona Campbell
Partner & Head of Business Recovery and Insolvency
Last reviewed: 28 October 2026If you’re planning to close a solvent company, the 2026 Budget may have given you an additional reason to review your timing.
From 6 April 2027, the lifetime limit for Business Asset Disposal Relief (BADR) will reduce from £1 million to £500,000. For some shareholders, that could mean paying more Capital Gains Tax on funds extracted through a Members’ Voluntary Liquidation (MVL).
At the same time, the Government has announced a new Founders’ Relief aimed at founders and significant early investors in high-growth, innovative companies. The proposed relief could offer a 10% Capital Gains Tax rate on qualifying gains of up to £10 million.
As a result, there is no single answer for every business owner. The right timing will depend on your circumstances, the reliefs available and the nature of the transaction.
Key Takeaways
- The BADR lifetime limit falls from £1 million to £500,000 on 6 April 2027.
- Shareholders with qualifying gains above £500,000 may face a higher Capital Gains Tax bill after that date.
- Owners already planning to close a solvent company should review whether bringing forward an MVL is appropriate.
- A new Founders’ Relief is expected from April 2027, but the qualifying conditions are still being developed.
- Tax advice should be taken well before any disposal or liquidation is implemented.
What is Changing With BADR?
BADR reduces the rate of Capital Gains Tax payable on qualifying business disposals.
The relief currently applies to qualifying lifetime gains of up to £1 million. Under the Budget proposals, that limit will halve to £500,000 from 6 April 2027.
The tax rate itself is not changing. The difference is that a smaller proportion of a qualifying gain will benefit from BADR.
For business owners who have not previously used their BADR allowance and expect gains above £500,000, the timing of a disposal may become an important consideration.
How Much Difference Could the Change Make?
Assume a shareholder is entitled to BADR and realises a gain of £1 million.
Before 6 April 2027, the full gain could qualify for BADR, producing a Capital Gains Tax bill of £180,000 based on the current 18% rate.
After the change, only the first £500,000 would fall within the reduced BADR limit. If the remaining £500,000 is taxed at 24%, the tax liability increases to £210,000.
That represents an additional £30,000 of tax for that individual.
Where there are multiple shareholders, the combined impact can be significantly higher because BADR is a personal lifetime allowance.
Why Does This Matter for a Members’ Voluntary Liquidation?
An MVL is commonly used to wind up a solvent company and distribute surplus funds to shareholders.
Typical scenarios include:
- retirement;
- the sale of a business;
- group simplification exercises; or
- companies that have reached the end of their commercial life.
Where shareholders qualify for capital treatment and BADR, an MVL can provide a tax-efficient route to extracting retained profits and reserves.
The reduction in the BADR lifetime limit means that businesses already expected to enter liquidation should review whether delaying the process still makes sense.
This does not mean every company should rush into an MVL. It does mean that owners who are already considering closure should understand the potential tax impact of waiting until after 5 April 2027.
Founders’ Relief May Change the Picture
The Budget also included plans for a new Founders’ Relief from 6 April 2027.
The proposed relief is aimed at founders and significant early investors in high-growth, innovative UK businesses. Current proposals suggest qualifying individuals could benefit from a 10% Capital Gains Tax rate on gains of up to £10 million over their lifetime.
That would be substantially more generous than BADR.
However, the legislation is not yet finalised. The Government is consulting on the detail, including who will qualify and the conditions businesses will need to satisfy.
For that reason, business owners should avoid making decisions based on assumptions about future eligibility.
What Should Business Owners Review Now?
If a business disposal or solvent liquidation is already under consideration, it is sensible to establish:
- whether BADR is available;
- how much of the lifetime BADR allowance has already been used;
- the expected gain on the shares;
- whether Founders’ Relief could potentially apply;
- whether there are any commercial or legal issues that need to be resolved before a disposal; and
- when the disposal will be treated as taking place for Capital Gains Tax purposes.
In an MVL, timing can be critical. The date that matters for tax purposes is not always the date discussions start or instructions are given.
Why Planning Early Could Be Worthwhile
The reduction in the BADR lifetime limit creates a clear deadline for some business owners.
For those already intending to close a solvent company, reviewing plans ahead of April 2027 could help preserve access to the current £1 million allowance. In some cases, that may reduce Capital Gains Tax by up to £30,000 per shareholder, depending on the level of gain and their previous use of BADR.
The introduction of Founders’ Relief means the position is more nuanced for founders and early investors in qualifying high-growth businesses.
Rather than focusing solely on the April 2027 deadline, the better approach is to review your options early, understand which reliefs may be available and ensure any liquidation or disposal is structured with those reliefs in mind.
If you are considering closing a solvent company or extracting value from your shareholding, taking tax and insolvency advice well in advance of 6 April 2027 will provide more flexibility than waiting until the final months before the change takes effect.
BADR and MVL FAQs
Potentially. The qualifying conditions for BADR are not changing, but the lifetime limit on gains that can benefit from the relief is reducing from £1 million to £500,000. Whether you qualify will depend on your shareholding, role in the business and previous use of the relief.
The amount will depend on the size of your gain and how much of your BADR lifetime limit remains available. For someone with a £1 million qualifying gain and their full BADR allowance available, the reduction in the lifetime limit could result in up to £30,000 of additional Capital Gains Tax after 5 April 2027.
Not necessarily. What matters is when the disposal is treated as taking place for tax purposes. Business owners considering an MVL should seek advice well in advance of the deadline, as starting the process shortly before April 2027 may not achieve the intended tax outcome.
BADR is an existing Capital Gains Tax relief available on qualifying business disposals. The proposed Founders’ Relief is due to be introduced from 6 April 2027 and is intended for founders and significant early investors in high-growth, innovative businesses. The final qualifying conditions have not yet been confirmed.
Not without taking advice. The qualifying conditions for Founders’ Relief are still being developed, so delaying a disposal on the assumption that the relief will apply could create unexpected tax consequences.
Waiting until early 2027 could leave little time to address tax, legal and practical issues. If company closure is already being considered, discussing your options during 2026 may provide greater flexibility and help avoid last-minute decisions.
