Maximising Your Exit: Why Capital Gains Treatment Matters in a High-Dividend Era

For directors and shareholders looking to take value out of their private companies, the tax landscape has shifted. With dividend tax rates now noticeably higher, the old strategy of extracting profits through regular dividends has become far less attractive. As a result, structuring your exit so that returns are taxed as capital — rather than income — has never been more important.

The widening gap between dividend tax rates and Capital Gains Tax (“CGT”) rates means that well-planned share sales, buybacks, and exit events can deliver significantly better net outcomes.

The CGT and business asset disposal relief (“BADR”) rates are:

The Autumn Budget 2025 introduced rate increases on dividend income:

For higher-rate taxpayers, at a rate of 39.35% charged to income tax on dividends more than a third of profits extracted as dividends now goes straight to HMRC before you see a penny. That changes the calculation for owner-managers who’ve historically relied on dividends as their primary extraction method.  But if it fell to be treated as capital the rate drops to 18% paid as a capital receipt and subject to CGT from 6 April 2026.

Why capital gains treatment is now the smarter route

Capital Gains Tax on a business sale or share disposal is typically far more favourable — especially if you qualify for BADR, which can reduce the effective rate to 14% on lifetime qualifying gains.

Compared with the 39.35% additional dividend rate, the difference is stark. A properly structured share buyback, exit, or succession event can mean keeping vastly more of the value you’ve built.

How we help you secure capital treatment

Moving from income extraction to a capital-focused strategy needs careful handling. HMRC will reclassify receipts as income if the transaction isn’t structured correctly — which can wipe out the tax advantage entirely.

One of the biggest problem areas is how the earn out is structured.  If the earn out looks like a glorification of salary it will be taxed as such with national insurance. Another problem area are the share rights.  There are other areas to watch out for.

Our specialist corporate team works with business owners to deliver compliant, tax-efficient exits:

• Share Buybacks: Advising on the legal framework and conditions needed for a buyback to qualify for CGT treatment rather than income tax.  
• Business Sales & Exit Planning: Structuring sales to external buyers so that proceeds are taxed as capital gains.
• Succession & MBOs: Helping you transition ownership — including management buyouts and family succession — in a tax-efficient manner. 
• BADR Qualification: Ensuring your shareholding, role, and transaction terms meet the strict requirements for BADR. 

High dividend taxes shouldn’t erode the value you’ve worked to build. Get in touch to discuss how to extract wealth from your company in the most tax-efficient way possible.