Rising BADR rates bring MBO timing into sharper view

The idea of selling a business to its management team has long been part of succession planning in the UK.

However, changes to the tax treatment of gains under Business Asset Disposal Relief (BADR) this month have added a new layer to the discussion, not in terms of strategy, but timing.

BADR increase prompts more pointed questions about MBOs

As a way of ensuring that you pay less Capital Gains Tax (CGT), selling part of your business may be a safe strategy.

These sales will be impacted by BADR so it is good to understand the changes to ensure that you can maintain maximum control over your finances.

The changing rates of BADR will ultimately impact how much tax you can save by selling parts of your business.

The BADR rate has increased from ten per cent to fourteen per cent and is due to rise again to eighteen per cent in April 2026.

While BADR still offers lower tax rates on qualifying disposals, the gradual rise is changing the numbers for business owners who are thinking about when to exit, particularly if a Management Buyout (MBO) is already under consideration.

Tax rarely drives major business decisions on its own, but when the difference amounts to a reduction in personal proceeds, it becomes difficult to ignore.

For owners who are already weighing succession options, the new rate is bringing timing into focus.

When the structure of an MBO matters as much as the sale

An MBO relies on the ability of the management team to take on responsibility, the operational stability of the business, and the readiness of the current owner to step back.

Those factors remain the foundation of any successful transition.

The recent changes do not alter the core requirements of an MBO.

A credible plan still depends on whether the team can lead, the finances stack up, and the business is stable enough to support the transition.

For some, these factors are already in good shape. Others may find that the current context helps to expose what still needs to be addressed.

A practical window for MBO preparation

The tax context is clearer now than it has been in recent years, meaning that the next 12 months offer a planning window.

Owners who are considering a transfer to their management team may benefit from exploring the implications of completing a deal before April 2026 without being driven solely by the deadline.

Planning an MBO with clarity

An MBO involves a series of choices, each with its own risks and consequences.

Understanding how the deal could be structured, what the financial exposure might look like, and how timing affects the outcome allows owners to make decisions based on facts rather than assumptions.

Employee ownership trust as an alternative strategy

An Employee Ownership Trust (EOT) may serve as a viable alternative to an MBO.

In terms of being more tax efficient, an EOT carries with it less CGT and thus may result in a lower overall tax bill.

It can also be a valuable way of rewarding key employees who have contributed significantly to the success of the business.

It is seen as a way of achieving a tax free exit while realising a full market value for shares.

However, this may come at a cost in terms of strategic flexibility and slower in terms of payouts.

As such, it is best to seek professional advice before determining whether to use an MBO or EOT and which will ultimately be best for your business.

To assess whether an MBO or EOT could work in your business, contact us today for expert advice.