Business owner faces a gradual reduction in the capital gains tax breaks on business asset disposal relief (BADR) but it survives another day

The rate for business asset disposal relief (BADR) and investors’ relief will increase 4% from the current 10% to a standard rate of 14% from 6 April 2025 before increasing again the following year to equalise with the main lower rate of 18% capital gains tax from 6 April 2026.

 

Under the current system, business asset disposal relief is a 10% tax charge on all gains on qualifying assets when a business is sold as long as it has been owned for a minimum of two years.

 

There had been some expectations the relief would be completely abolished as it is has been chipped away at by successive Chancellors.

 

The government said the staggered approach to the move away from 10% relief will ‘allow business owners time to adjust to the changes’.

 

The Chancellor has severely reduced the value of the relief by increasing the rate at which BADR gains are taxed.

 

The relief remains limited to a lifetime allowance of £1m, meaning that by April 2026 it will only save a maximum of £60,000 in capital gains tax. For a relief which was once worth £1m, this is now small beer.

 

With the qualifying conditions also being complicated to navigate in some instances, BADR is likely to have declining importance in future. I would not be surprised if we see it being phased out altogether over time.

 

The timing of the change in the rate of tax relief does offer some opportunities for owners looking to exit their businesses.

 

John Barnett, chair of CIOT’s technical policy committee, said: ‘Since the BADR rate remains at 10% until April 2025, while the CGT increases immediately to 24%, people selling their business can save up to 14% CGT (£140,000 per person) until April 2025 and 10% (£100,000) until April 2026.’

 

Increasing CGT to 18% on the low end and 24% on the high, is thankfully less than expected and a far cry from aligning with income tax rates. And business owners will certainly be relieved that business asset disposal relief hasn’t taken the drastic hit we all feared, ensuring business disposals should continue to benefit from a significantly lower tax rate.’

 

However, the relief needs to be reformed as it does not encourage entrepreneurship which is vital if ambitious growth targets and improvements to productivity are going to be achieved.

 

One criticism of BADR has been that it is a relief that benefits entrepreneurs when they sell up rather than encouraging and supporting them at the start. Going forward we would like to see the government look at how more help can be provided to help new entrepreneurs, perhaps through additional upfront reliefs for the early years of a business.’

 

It appears that the government has been listening and incentives for business investment will stimulate growth.

 

The government also stressed that it was ‘committed to creating a positive environment for entrepreneurship and will work with leading entrepreneurs and venture capital firms on how policy supports that, including the role of the existing tax schemes’.