Business succession planning: exit options and tax changes for 2025-26

Deciding to leave a business can be as difficult as starting or buying a new one. Business succession planning helps secure the future of your business by establishing a clear plan for leadership and ownership transition.

What is business succession planning?

Business succession planning is the strategic process of identifying and developing internal or external successors to take over the leadership and ownership of a business when the current owner or management team retires, leaves, or is unable to continue. It involves creating a comprehensive roadmap to ensure a smooth transition, minimise disruptions, and preserve the company’s value, market position, and long-term success.

Business succession planning options

Transferring a business to a family member

For family-owned companies, transferring shares to the next generation may be the preferred option. However, this is not always practical. Adult children may be pursuing their own careers or may not have the experience to run the business.

If this is an option for you, note the changes to inheritance tax Business Property Relief and Agricultural Property Relief from 6 April 2026, which are considered further in our article on Succession planning for family businesses.

Trade sale

What is a trade sale?

A trade sale of a company involves the sale of the business to another company in the same industry or a related sector. It typically involves the transfer of ownership and assets, providing the selling company with an exit strategy while allowing the acquiring company to expand its market presence or enhance its capabilities.

You could sell the company’s shares to a third-party purchaser or, possibly, to a private equity house.

A trade sale may offer a clean break for the owner and may generate the best possible commercial price.

Tax implications: CGT and Business Asset Disposal Relief (BADR)

From a tax perspective, capital gains arising on the sale of shares are taxed at capital gains tax (CGT) rates. From 6 April 2026, capital gains qualifying for Business Asset Disposal Relief (BADR), which is subject to a £1 million lifetime gains limit, are taxed at 18% (14% for the 2025-26 tax year). Gains that do not qualify for BADR are generally taxed at 24%.  Although BADR has reduced in value over recent years, the difference between the BADR rate and the standard CGT rate on a sale of shares means that it may still be attractive for many business owners (especially those who have not sold businesses in the past and therefore not claimed BADR previously).

Drawbacks and risks of a trade sale

Downsides of a trade sale can include:

• Loss of control over the future direction of the business, its workforce and its local presence, which could impact on the business’s legacy, and
• Extensive due diligence, warranties and indemnities, and the possibility of price renegotiation.

Management buyout (MBO)

How an MBO works?

A management buyout involves the existing management team purchasing the business.

Like a trade sale, an MBO creates capital gains that, from 6 April 2026 are taxed at rates of between 18% and 24% (14% and 24% in the 2025-26 tax year), depending on whether BADR applies.

Benefits of a management buyout

Commercial advantages include:

• A known buyer, giving the owner more control over the transaction and the make-up of the new management team,
• An increased likelihood that the ethos and culture of the business will be maintained, protecting the legacy of the family business,
• Reduced warranties and indemnities, as management already know the business well, and
• A reduced requirement for external funding, with consideration likely to be in the form of cash already in the business and vendor loan notes.

Disadvantages and risks for sellers

• As a ‘friendly’ transaction, the price may be lower than in a trade sale, and
• More of the price may be deferred, meaning the seller receives less cash on completion. A substantial part of the proceeds may be in the form of loan notes payable out of future profits, which could be at risk of becoming irrecoverable. As a result, the seller may need to stay involved in the business until the loan notes have been repaid.

Employee Ownership Trust (EOT)

An Employee Ownership Trust (EOT) has been an increasingly popular structure over recent years where a trust holds shares of the business on behalf of employees.

It involves a sale of a controlling interest to an EOT for market value.

With an EOT structure, the majority of the company’s shares are held by the EOT for the long-term benefit of the employees as a whole. Many of the considerations that apply to an MBO will also apply to a sale to an EOT. In EOT sales, a higher proportion of the sale price is often deferred and is paid over a longer period than in a trade sale or an MBO (which can be reflective of the employees obtaining an interest in the company via the EOT without using their own funds).

It is important to model this carefully to ensure that future cashflow commitments do not create pressure on the ongoing business.

Tax treatment of EOT sales

Sales to EOTs have attracted significant interest because of their favourable CGT treatment. However, the tax position changes materially from 26 November 2025:

• For disposals on or after 26 November 2025, 50% of the gain is potentially exempt and 50% is chargeable, with the chargeable part unable to qualify for BADR or Investors’ Relief and so, based upon the current main rate of CGT of 24%, the current effective rate of CGT would be 12%, and

• For disposals before 26 November 2025, 100% of the gain was potentially exempt.

This favourable treatment should not be the sole driver for the use of an EOT. The business’s culture, values and employee engagement must support long‑term employee ownership.

The tax position should also be weighed against commercial realities, for example if the sale price on a sale to an EOT is lower and more heavily deferred then the commercial position net of tax might be similar to that of a trade sale or MBO.

For this tax treatment to be available, there are multiple conditions that must be met. One important condition is that the EOT must hold a controlling interest in the company or, looking at it the other way, the previous business owners must relinquish control to the EOT.

HMRC guidance indicates that it may seek to treat certain payments from a company to EOT trustees as distributions, so it is important to understand the risk and ensure the purpose and commercial basis of each payment is clearly documented.

Benefits of employee ownership

Employee ownership is likely to benefit people-focused businesses that prioritises staff retention. An EOT structure can:

• Improve employee commitment
• Enhance employment standards
• Support recruitment and retention
• Strengthen corporate social responsibility
• Increase investment in the local community
• Improve business performance

As with an MBO, a strong and motivated new management team is crucial to take the company forward. However, it’s vital that the new management team has fully bought into the EOT structure.

Choosing the right business exit strategy

Where there is no family succession route, a trade sale (or a sale to private equity) or MBO can offer well-established exit paths and can work in the right circumstances.

EOTs appear to have become increasingly popular, but the key commercial and cultural aspects of employee ownership need to be considered, together with the changes to the CGT position from 26 November 2025.

How we can help

When looking at succession planning, it’s important to get advice early on. If you’d like help identifying the right route for your business, speak to your usual Saffery contact, or get in touch with Sean Watts; we can also help you to develop a business exit plan.