Tax
Budget 2026: what the tax rise speculation means for business owners
Economists expect tax rises in the 28 October 2026 Budget, and the change that matters most for business owners is aligning capital gains tax with income tax rates. Here is what an equalised CGT could mean for a company sale, and how to plan for it.
By David ElliottBSc FCA, Founder & Managing PartnerFigures in this piece were checked on 28 August 2026. Rates and thresholds change, so confirm anything you are relying on.
With gilt yields climbing, spending commitments mounting, and fiscal headroom all but exhausted, economists are near unanimous: Chancellor John Healey’s maiden Budget on 28 October 2026 will raise taxes. The only real questions are which taxes, by how much, and who bears the brunt.
For our clients, particularly owners of small and medium sized businesses, one option under serious discussion deserves close attention now, well before the Budget itself: the possible equalisation of capital gains tax (CGT) with income tax rates.
Why CGT is in the frame
Currently, capital gains are taxed at rates below those applied to income. Under the reform being floated, and reportedly endorsed by senior Labour figures including former Health Secretary Wes Streeting, gains would instead be taxed in line with the income tax bands: 20%, 40% and 45% depending on the taxpayer’s overall income. This is being modelled on research from the Centre for the Analysis of Taxation, which estimates the change could raise in the region of £14bn a year for the Treasury.
Those in favour frame this as a “wealth tax that works”, closing what they see as an unfair gap between how income and investment gains are taxed. Critics, including former Bank of England chief economist Andy Haldane, warn against treating CGT as a “cash cow”. They caution that receipts from capital gains are notoriously volatile, and that poorly designed reforms could actually reduce revenue if investors respond by relocating capital, or simply holding onto assets rather than selling them and realising gains.
Nothing is confirmed. But the direction of travel, and the political appetite behind it, means that business owners with an eye on a future sale should be paying close attention.
What this could mean in practice
Consider a business owner with a company worth £2m, with a sale on the horizon.
Under current rules, Business Asset Disposal Relief (BADR) applies a reduced 18% rate to the first £1m of qualifying lifetime gains, with the balance taxed at the standard higher rate of CGT, which is 24%. That gives a tax bill of £180,000 on the first £1m, plus £240,000 on the remaining £1m: a total CGT liability of £420,000, leaving net proceeds of £1.58m. The effective weighted average rate on the full gain works out at 21%.
Under an equalised regime, if BADR were retained in its current form, and there is no guarantee of that, and the rest were taxed at the owner’s marginal income tax rate rather than the standard CGT rate, the £1m outside BADR could be taxed at 45% instead of 24%. That pushes the bill to £180,000 on the first £1m plus £450,000 on the second £1m: a total of £630,000. Net proceeds would be cut to £1.37m, and the effective weighted average CGT rate raised to just over 31%.
The position could be more severe still. Several of the proposals under discussion do not simply raise the standard CGT rate. They curtail reliefs like BADR altogether as part of full alignment with income tax. If BADR were withdrawn entirely and the full £2m gain taxed at 45%, the bill would rise to £900,000, more than double today’s figure, leaving net proceeds of just £1.1m.
| Scenario on a £2m sale | CGT bill | Net proceeds | Effective rate |
|---|---|---|---|
| Today: BADR at 18%, balance at 24% | £420,000 | £1.58m | 21% |
| Equalised, BADR retained: balance at 45% | £630,000 | £1.37m | just over 31% |
| Full alignment, BADR withdrawn: all at 45% | £900,000 | £1.10m | 45% |
In other words, depending on how equalisation is implemented, this business owner could see their tax bill on exit rise from £420,000 to somewhere between £630,000 and £900,000: a difference of £210,000 to £480,000 in additional tax, purely as a result of when and how the sale is structured relative to any Budget changes.
It is not just outright company sales that are exposed. Owners planning to extract value through share buybacks, restructuring ahead of retirement, or passing on a stake to the next generation, could all see the tax treatment of that transaction shift considerably depending on timing.
What business owners should be thinking about now
While speculation should never be the sole driver of major financial decisions, this is a moment to review plans with a clear head.
Timing of disposals
If a sale or restructuring is already under consideration for the next 12 to 18 months, it is worth understanding the trade-offs of accelerating versus waiting for Budget clarity. Bear in mind that when changes of this nature are announced, there are often anti-forestalling measures put in place to prevent taxpayers beating the system before new rules and rates take effect.
Use of existing reliefs
Business Asset Disposal Relief and other current reliefs may look considerably more valuable under a higher-rate CGT environment. Understanding your eligibility now, rather than scrambling in October, puts you in a stronger position.
Structuring of the sale
Earn-outs, deferred consideration, and the interaction between corporate and personal tax treatment all become more consequential if the gap between CGT and income tax narrows.
Wider portfolio impact
It is not just business sales that could be affected. Investment portfolios, buy-to-let disposals, and other capital transactions would all be caught by equalisation, so this is not a conversation limited to those actively selling a company. If you are in the process of selling a residential buy-to-let or a commercial property, getting the transaction over the line before Budget day on 28 October might be advisable.
The bigger picture
CGT reform is just one of several tax rises being discussed ahead of October’s Budget, alongside a possible land value tax, an extension of national insurance to cover investment and property income, and a potential windfall levy on banks. But for business owners specifically, CGT equalisation stands out as the change most likely to directly affect exit planning and personal wealth extraction.
Nothing will be certain until the Chancellor stands up in the Commons. But given the scale of the potential shift, this is exactly the kind of change worth planning for in advance rather than reacting to afterwards.
Frequently asked questions
Is capital gains tax going up in the 2026 Budget?
Nothing is confirmed. Aligning capital gains tax with income tax rates is under serious discussion ahead of the Budget on 28 October 2026, and it has political support, but no change takes effect until the Chancellor announces it and it passes into law.
What does CGT “equalisation” mean?
It means taxing capital gains at the income tax rates of 20%, 40% and 45%, depending on your overall income, rather than at the current lower CGT rates of 18% and 24%. Some proposals go further and would also remove reliefs such as Business Asset Disposal Relief.
How much more could a business owner pay on a £2m sale?
On today’s rules the CGT bill on a £2m sale using Business Asset Disposal Relief is around £420,000. Under an equalised regime that could rise to roughly £630,000 if the relief is kept, or up to £900,000 if it is withdrawn and the whole gain is taxed at 45%.
What is Business Asset Disposal Relief?
Business Asset Disposal Relief applies a reduced 18% rate of capital gains tax to the first £1m of qualifying gains over your lifetime when you sell all or part of a trading business. Gains above that limit are taxed at the standard rate, currently 24%.
Should I sell my business before the Budget?
Speculation alone should not drive a decision this size. But if a sale or restructuring is already planned for the next 12 to 18 months, it is sensible to review the timing now, understand your current reliefs, and be aware that anti-forestalling rules can limit last-minute moves. The right answer depends on your circumstances, so talk it through with your accountant.
If you are considering a sale, restructuring, or any significant capital transaction in the near term, now is a sensible time to talk through your options. You can also read more about how we support owners planning an exit or sale.