How to Plan, Structure and Optimise Your Business Sale in Light of the 2026 Budget Changes
Entrepreneurs build businesses with grit, sacrifice, and long-term vision, but very few plan their exit with the same intensity that they invest into building. While the entrepreneurship ecosystem celebrates growth, scaling, and investment rounds, the exit remains one of the least understood phases of the entrepreneurial journey. And yet it is precisely at exit that one of the most significant tax exposures emerges, Capital Gains Tax (CGT).
The 2026 Budget Speech introduced critical changes to CGT exemptions for older entrepreneurs selling qualifying small businesses. These revisions, the first meaningful adjustment in years, provide expanded relief, but only to those who plan strategically and structure their transactions correctly. Without such planning, many founders face an unpleasant surprise when SARS claims a significant portion of their sale proceeds.
This article explores how CGT applies when selling a business, what has changed, how to structure a sale (business vs shares), and practical steps to reduce tax leakage while maximising after‑tax value.
What Exactly is Capital Gains Tax?
Capital Gains Tax in South Africa is not a separate tax but part of income tax, triggered when a person disposes (sells) of an asset, defined widely to include both tangible and intangible property, shares, business goodwill, rights, and intellectual property. In an exit context, the assets most relevant to entrepreneurs are:
- Shares in a company
- Business assets (plant, equipment, vehicles, customer lists, goodwill, trademarks, contracts)
- Interests in close corporations
- Intellectual property created or acquired during the life of the business
A capital gain arises when proceeds (sale proceeds) exceed the base cost of the asset and the tax on it is calculate as: CGT = Capital Gain × Inclusion Rate × Income Tax Rate.
For individuals, the inclusion rate is 40%, meaning only 40% of the gain is added to taxable income. Trusts and companies have a higher inclusion rate of 80% of the gain. Importantly, the Eighth Schedule of the Income Tax Act governs the calculation, from determining what constitutes a disposal (para 11), to determining proceeds (para 35), base cost (para 20), exclusions (Chapter 12), and rollovers (Chapter 13).
The Two Pathways for Selling a Business: Assets vs Shares
How you exit matters. Entrepreneurs typically exit in one of two ways:
A. Selling the Business Assets
Here, the business entity (Pty, Ltd) remains, but the buyer purchases specific assets, equipment, contracts, client lists, stock, goodwill. CGT is triggered on assets where sale proceeds exceed base cost. Goodwill often carries the biggest gain because its cost is usually “nil”.
B. Selling Shares (equity sale)
Here, the buyer acquires the company itself. The seller disposes of shares, an asset, triggering CGT on the gain.
Key differences:
· Asset sales can trigger multiple CGT events for each asset.
· Share sales trigger CGT once and potentially attract more favourable exemptions.
· Buyers usually prefer asset sales to avoid inheriting liabilities.
· Sellers usually prefer share sales as it is more tax-efficient.
Strategic structuring is therefore essential, sometimes including pre-sale reorganisations, ring‑fencing assets, or creating clean Special Purpose Vehicles (SPVs).
The 2026 Budget Speech: A Turning Point for Older Entrepreneurs
For the first time since introduction, the small business CGT retirement exemption has been significantly increased.
Previous exemption:
R1.8 million lifetime exclusion
Business value cap: R10 million
New 2026 exemption:
R2.7 million lifetime capital gains exemption
Business value cap increased to R15 million
This revision is profound for small business owners as it effectively shields more of their retirement wealth, especially in scenarios where goodwill forms a large component of the value. To qualify for this exemption, a seller must be:
- An individual (not a company),
- At least 55 years old,
- Or exiting due to ill‑health, disability, or death.
- The business must be “small”: Gross assets (including goodwill) must not exceed R15 million at disposal.
- The seller must have been substantially involved:
- Must have held at least 10% of the equity, and
- Must have been actively involved in the business for at least 5 years.
- The relief applies to equity shares or business assets used for business purposes.
This exemption can dramatically affect net proceeds. For example, a founder selling for R14 million with a R3 million gain could potentially eliminate the entire CGT exposure.
Structuring Your Exit to Minimise CGT
1. Choose the Right Sale Structure
a. Share sales are typically more tax-efficient because the gain is realised once and allows access to para 57 relief (Small Business CGT Retirement Exclusion).
b. Asset sales may trigger CGT on individual assets (goodwill, equipment) often resulting in a higher tax bill.
2. Correctly Determine Base Cost
a. Base cost includes Acquisition price, Legal fees, Improvement costs, Valuation fees, and costs to defend ownership
b. Poor record‑keeping inflates your CGT exposure by reducing deductible base cost.
3. Reorganise Ownership Early
a. If you foresee bringing in investors or exiting partially, plan before a transaction is on the table. Changes in shareholding close to exit may dilute access to the small business exemption.
4. Consider Pre‑Sale Clean‑Ups
a. Remove non-business assets, Redundant liabilities and repay Loans to shareholders. This makes share deals more attractive and increases bargaining power.
5. Manage Earn-Out Clauses Carefully
a. Earn-outs can create complexities as additional proceeds may arise in later years. This affects timing and total CGT payable. SARS views disguised remuneration as revenue, not capital
6. Plan for Partial Exits (If Selling less than 100%)
a. CGT applies on the portion disposed. If you sell only 40% of your shares, CGT is triggered on that 40%. Future sales will trigger additional disposals and failure to plan this sequence can severely limit access to para 57 relief (Small Business CGT Retirement Exclusion).
7. Avoiding Common Pitfalls
a. Assuming buying a new asset avoids CGT. CGT rollover relief (para 65) applies only in specific involuntary disposals, not voluntary sales.
b. Confusing revenue vs capital receipts. If SARS deems the transaction a scheme of profit‑making, gains may be taxed as revenue (much higher).
c. Believing an earn‑out is tax‑free until received. This is not true, the Eighth Schedule anticipates further proceeds.
d. Leaving exit planning too late. Restructures done within 12–24 months of exit are high‑risk and often challenged.
Selling a business is both a financial and emotional milestone. For most entrepreneurs, it represents the reward for decades of labour. But without proper planning, the tax cost at exit can erode value significantly. The 2026 Budget has widened the relief available, but this benefit is reserved for those who actively prepare, structure properly, and engage the right advisors early. An exit should never be accidental. It should be engineered. That is how entrepreneurs preserve value and create the legacy they worked so hard to build.
Tax‑efficiently. Strategically. Intentionally.
Practical Exit Planning Checklist
✔ Start planning 2–5 years before exit
Build an “exit‑ready” business: clean financials, proper governance, IP registered, shareholder agreements aligned.
✔ Obtain a professional valuation
CGT requires valuation evidence; SARS often challenges goodwill valuations.
✔ Review shareholding and restructure early
Ensure the seller meets the para 57 requirements.
✔ Consider independent tax and legal advice
CGT interactions with dividends tax, company law, and transaction structuring can be complex.
✔ Model CGT outcomes for different scenarios
- Share sale vs asset sale
- 40% sale now & 60% later
- Earn‑out vs full upfront payment
✔ Embed CGT planning into your negotiation strategy
Price, structure, warranties, and timing all affect tax outcomes.
