Changes coming to Business Asset Disposal Relief
What is Business Asset Disposal Relief?
Business Asset Disposal Relief (BADR) allows some taxpayers to pay less Capital Gains Tax (CGT) on the sale of certain business assets.
With BADR, taxpayers selling all or part of their business currently pay tax at 10% on all gains on qualifying assets. Frequently, the relief is used by business owners on the sale of shares in their company.
This relief is valid up to a maximum of £1 million of capital gains across an individual’s lifetime, which means (based on the current CGT rate of 24%) it can potentially provide a tax saving of up to £140,000.
The history of BADR
Business Asset Disposal Relief was known as Entrepreneurs’ Relief until April 2020.
Entrepreneur’s Relief was introduced in 2008, after that year’s Budget abolished the taper relief rules on business disposals in favour of a new flat rate of CGT at 10%. Business owners who had built a business over many years would therefore be faced with far higher rates of CGT when selling. To avoid discouraging entrepreneurship, the government introduced Entrepreneurs’ Relief.
The lifetime allowance, initially set at £1 million, rose to £2m and then £5m in 2010, before doubling again to £10m in 2011. When Entrepreneur’s Relief became Business Asset Disposal Relief, the lifetime limit decreased to £1m for disposals made after 6 April 2020.
Who is eligible for Business Asset Disposal Relief?
To be eligible for BADR, there must be a qualifying business disposal, and you must meet certain qualifying criteria in the 24 months before a claim is made. Individual tax advice should be sought in respect of eligibility for BADR.
What is changing?
Despite rumours that Chancellor Rachel Reeves might scrap BADR altogether in her first Budget last Autumn, the valuable relief – and the lifetime limit of £1 million – did survive.
Instead, Ms Reeves announced that the BADR rate of CGT will increase in April 2025 and April 2026.
From 6 April 2025, the tax rate will rise to 14%. Then, from 6 April 2026, it will rise again to 18%.
These steep rate rises could result in paying thousands of pounds more tax. For example, disposing of a business with a chargeable gain of £1 million will see the owner pay an additional £40,000 in tax from 6 April 2025 and an additional £80,000 in tax from 6 April 2026.
Consult a specialist
The Corporate Team at Attwaters Jameson Hill would be delighted to work with you to explore your exit options (and will be happy to work with other professional advisers to plan your exit). The earlier you start to plan, the greater chance you have of avoiding the increased BADR rates.
Working with our colleagues in the private client team, we can also advise on succession planning and transitioning your business through to the next generation, where your key objective is to secure your business legacy.
Linked to the advice that we can provide on succession planning, we can also advise and assist in the preparation of Wills, Lasting Powers of Attorney as well as the establishment of Trusts and Family Investment Companies. With the changes announced to Business Property Relief and Agricultural Relief, this has probably never been more relevant!
Get in touch today
With the changes fast approaching, there’s no time to wait. At Attwaters Jameson Hill, we would welcome the opportunity to work with you and are happy to engage in initial conversations to discuss your options. Get in touch today!
