BADR at 18% and the £2.5m Inheritance Tax Cap: The 2026 Tax Reset

Before anything else, the standard and important caveat: this article is general context, not tax advice. Any decision with tax consequences should be taken with a qualified accountant or tax adviser who knows your circumstances. With that said, two changes took effect in April 2026 that every electrical business owner thinking about an exit should understand, because both reward working the arithmetic early.

This is one of the four forces in our 2026 Electrical Exit Window briefing. Here I want to take the tax reset on its own, including a change that far fewer owners have clocked.

Business Asset Disposal Relief Is Now 18%

The staircase is complete. Business Asset Disposal Relief was 10 per cent until April 2025, rose to 14 per cent for the 2025-26 tax year, and has been 18 per cent since 6 April 2026. It still applies to the first £1m of qualifying lifetime gains, with the excess taxed at the main capital gains rate of 24 per cent.

Because the rise has already happened, the countdown articles you may have read last spring have expired. What is left is a calmer calculation. At 18 per cent, BADR is still worth up to £60,000 on a full £1m gain compared with the main rate, and the gap between 18 and 24 per cent is the narrowest it has ever been. Whether it narrows further is a question for future Budgets; the direction of travel since 2024 has run one way.

One practical point that catches owners out: it is the completion date of the sale that fixes the rate, not the day you agree terms, and the two-year qualifying conditions still apply. A typical electrical business sale takes several months from first conversation to legal completion, so if certainty about your tax year matters, the timeline needs planning in from the start.

The Change Fewer Owners Have Noticed

The second reset is less discussed and, for owners of larger businesses, arguably more significant. From April 2026, 100 per cent Business Property Relief from inheritance tax applies only to the first £2.5m of combined business and agricultural assets. Above that, relief halves to 50 per cent, an effective 20 per cent inheritance tax rate on the excess.

The cap was originally announced at £1m and raised to £2.5m in December 2025. It is transferable between spouses and civil partners, so a couple can shelter up to £5m, and HMRC estimate around 1,100 estates a year will pay more as a result.

For years, the plan for many owners was simple: hold the business for life, pass it on, no inheritance tax. Above the new cap, that plan now has a price attached.

Here is why it bears on an exit decision. An electrical business worth £4m sits well above the cap, and the owner now faces a meaningfully different estate position than before April. That changes the comparison between holding the business, gifting it and selling it. It does not point to a single right answer, because the answer depends entirely on personal circumstances, but it does mean the question deserves an hour with your accountant this year rather than eventually.

What This Means in Practice

Neither change is, on its own, a reason to sell a business you are not ready to sell. Completing a poorly prepared transaction to hit a tax point, only to take a lower price because diligence exposed avoidable problems, would usually cost more than the tax saved.

The sensible approach is the same as it has always been. Assess honestly whether the business is ready, understand your own tax position with proper advice, and if the answer is that a sale in the next year or two makes sense, plan the timeline so the completion date lands where you want it. We can advise on market and valuation; your accountant advises on the tax. Between the two, you get a clear picture rather than a guess.