Following the 2024 Autumn Budget we have received numerous enquiries from clients asking how the tax changes affect their businesses and touching on our specialism in mergers and acquisitions, how the changes might affect their plans to sell their business or purchase another.
Summary:
- The Capital Gains Tax (CGT) rates increased from 10% to 18% (with the lower rate band) and from 20% to 24% (higher rate) as of 30th October 2024 in the Autumn Budget. A change to Business Asset Disposal Relief (BADR) was also announced.
- The BADR regime applies a lower rate of CGT on the first £1 million in lifetime gains for qualifying assets (see below).
- That lower rate is currently 10% but will increase to 14% on 6th April 2025. It will then increase again from 14% to 18% for disposals made on or after 6th April 2026.
- If selling a business after the 5th April 2025 and using the full lifetime £1 million BADR allowance you will pay £40,000 more in CGT on the sale (with the normal rates of CGT applying to the remaining capital gains above £1 million). If you are selling after the 5th April 2026, you will pay £80,000 more in CGT than you will at today’s rate.
The changes to CGT which increased the standard rates were implemented immediately on the day of the budget, 30th October 2024. Notably they were coupled with anti-forestalling provisions which looked through any artificial structures with the intention of deeming a sale to have exchanged and become unconditional before the increase.
The changes to BADR (formerly known as Entrepreneurs’ Relief) were however delayed until the new tax year.
What is Business Asset Disposal Relief?
Business Asset Disposal Relief is a tax relief available to UK taxpayers who dispose of qualifying business assets on which CGT is due.
CGT is paid on capital gains made when you sell, give away, or transfer all or part of your business. The relief available under the BADR regime reduces the CGT rate of 25% to 10% on the first £1 million of qualifying gains. This £1 million lifetime limit is reduced by any previous claims made in the past.
To be eligible for BADR, you must meet certain conditions:
- You must be a UK taxpayer.
- You must have owned the business assets for at least 24 months before the disposal.
- The business must be a trading company or a trading group, and you must have been an officer or employee of that company or group.
- You must hold at least 5% of the ordinary shares and voting rights in the company, and be entitled to at least 5% of the profits available for distribution and 5% of the assets available for distribution on a winding up.
What has changed?
The conditions and essentials of the regime remain the same. The lifetime limit of £1 million remains unchanged but the lower rate of CGT applied under BADR will increase. If you dispose of qualifying business assets on or after 6th April 2025, you will be subject to a higher rate of CGT, paying 14% on the first £1 million instead of 10%. The rate will then increase again from 14% to 18% for disposals made on or after 6th April 2026.
If you are planning to dispose of business assets in the near future, you should consider the impact of this change on your tax liability. It may be beneficial to bring forward the sale of your business to take advantage of the lower 10% rate before it increases at the end of the tax year. As an example, if using the full £1 million BADR allowance when selling your business, you will pay £40,000 more in CGT after 6th April 2025.
With our wealth of experience in company sales, Greene & Greene are well placed to assist with the sale of your business. The typical timeline for a sale of business is measured in months rather than weeks so be sure to enquire in plenty of time before the end of the tax year. It would not be surprising if similar anti-forestalling provisions as outlined above applied to transactions exchanged before 6th April 2025.
This is only intended to be a summary and not specific legal advice. Please speak to a member of our Corporate team if you would like more information.
For more information on the services offered by Greene & Greene please visit www.greene-greene.com and follow us on X (Twitter) @GreeneGreeneLaw.