The recent Autumn 2024 Budget has brought significant updates to the capital gains tax (CGT) rates applicable under Business Asset Disposal Relief (BADR), previously known as Entrepreneurs' Relief. For businesses and individual investors in the UK, especially those planning to sell shares in a trading company or business interests, understanding these changes is crucial. Simply Accounts Accountant Chester highlights the rise in CGT rates and the implications for taxpayers benefiting from BADR.
What is Business Asset Disposal Relief?
Business Asset Disposal Relief is a valuable UK tax relief designed to reduce the CGT payable when disposing of qualifying business assets. This relief applies if you sell:
- All or part of your business.
- Shares in a trading company.
- Your interest in a trading partnership.
The relief reduces the CGT rate from the standard rates to a lower percentage, traditionally benefiting small business owners and entrepreneurs by encouraging business growth and investment.
Recent Increases in Capital Gains Tax Rates for BADR
As part of the government’s fiscal strategy, the CGT rate for gains eligible for Business Asset Disposal Relief has been increased. The key dates and changes are as follows:
- From 6 April 2025, the CGT rate will rise from 10% to 14%.
- From 6 April 2026, an additional increase will take place, pushing the CGT rate up to 18%.
This is a significant change from the long-standing 10% rate that had incentivised many to invest in their business ventures under the relief scheme.
Why Are These Changes Important?
If you are a business owner or investor who plans to dispose of qualifying assets in the coming years, these changes could have a considerable impact on your tax position. The rising rates mean that the tax advantage offered by BADR will be less substantial and could affect the profitability of business sales or share disposals.
Simply Accounts Accountant Chester advises individuals and business clients to review their plans carefully:
- Consider timing disposals well before the new rates come into effect if possible.
- Reassess your overall capital gains strategy to factor in the higher rates.
- Seek professional advice on maximising any remaining relief and exploring other tax-efficient options.
What About the Lifetime Limit on BADR?
The lifetime limit for claiming Business Asset Disposal Relief remains unchanged at £1 million of gains. This means that although the rate is increasing, individuals can still claim the relief multiple times as long as their total gains do not exceed this £1 million threshold.
Maintaining awareness of this lifetime limit is essential, especially for serial entrepreneurs or business owners with multiple disposals over time. Careful record-keeping and tax planning will help ensure you don’t inadvertently exceed the limit.
Changes to Investors’ Relief – Another Key Update
Alongside BADR, the Autumn 2024 Budget introduced important alterations to Investors’ Relief, which also offers a lower CGT rate on gains from certain shares:
- The lifetime limit for Investors’ Relief has been cut from £10 million to £1 million for disposals from 30 October 2024.
- CGT rates for Investors’ Relief have been harmonised with BADR rates: increasing from the previous 10% to 14% currently and then to 18% from April 2026.
For many investors, these changes tighten the scope for tax reliefs when disposing of qualifying shares. Again, early planning and consultation with experts like Simply Accounts Accountant Chester is recommended to navigate these changes effectively.
What Should Business Owners and Investors Do Now?
With these forthcoming changes already in effect or scheduled shortly, taking proactive measures can help mitigate the higher CGT liabilities, including:
- Engaging with professional accountants: Specialists can provide bespoke advice based on your financial position and business plans.
- Reviewing the timing of disposals: Accelerating sales or transactions before April 2025 may help lock in the lower 10% rate.
- Exploring alternative reliefs and allowances: Investigate if any other CGT reliefs apply, such as Entrepreneurs' Relief for companies or reliefs for personal assets.
- Monitoring cumulative gains: Keep track of your lifetime BADR claim limit to avoid surprises and missed opportunities.
Simply Accounts, Accountant Chester, Accountant Tuebrook, Accountant West Derby, Accountant Knowsley, Accountant Croxteth, can be a valuable partner in navigating these complexities and ensuring compliance while optimising your tax position.
The announcement of increased capital gains tax rates under Business Asset Disposal Relief represents a significant shift from the historically low 10% rate businesses and entrepreneurs have long relied on. Rising to 14% from April 2025 and further to 18% in April 2026, these changes underscore the importance of timely tax planning.
While the lifetime relief limit of £1 million remains, the reduced scope and heightened rates for Investors’ Relief also demand careful consideration. Business owners and investors should seek expert advice promptly to make informed decisions in light of these upcoming tax changes.
If you need tailored advice on navigating the new BADR rates and minimising the impact on your business or investment gains, turn to trusted professionals like Simply Accounts Accountant Chester. Early preparation and professional guidance will be key to safeguarding your financial interests in this evolving tax landscape.