Following the 2024 Autumn Budget much of the attention focused on Government’s changes to Employers National Insurance and Capital Gains Tax(CGT) increases. The increased CGT rates were applied immediately meaning business owners in the process of selling their shares were faced with an immediate increase to their tax bill.

However, not all changes relating to CGT were immediate, with further changes due to come into effect from April 2025

Matthew Canfield, senior associate in our corporate team, discusses the upcoming changes and what Business Asset Disposal Relief means for business owners looking to sell.

Business Asset Disposal Relief (BADR) applies a lower rate of CGT for individuals in certain circumstances, including on the sale of shares in trading companies.

To qualify for BADR, a seller must meet certain conditions which includes (amongst others) having been an officer or employee of the company for the previous two years before the disposal, as well as holding at least five percent of the company’s shares and voting rights.

If all the conditions are met, then the sellers are liable for CGT at the reduced rate of 10%, subject to a lifetime limit of £1 million for qualifying capital gains. For gains in excess of the lifetime limit, the normal rate of CGT applies.

For an individual who has built up their business and is looking to sell, BADR is a valuable relief for when they do eventually sell.

However, effective from 6th April 2025, the BADR rate will be taxed at 14%, meaning on a disposal a seller will have to pay an additional 4% tax – if utilising the whole lifetime limit in one transaction this could be a difference of £40,000 in tax depending on the date of sale. The relief will be eroded further when the BADR rate increases again from April 2026 to 18%.

The conditions for eligibility will remain the same, and the £1 million lifetime limit will continue to apply so while BADR will be less valuable to sellers it will still provide an element of relief to them.

Future tax rises can act as a prompt to business owners who are considering selling to try and achieve a sale before the changes come into force.

If you are considering selling then please get in touch with Matthew Canfield or a member of the corporate team for more information.

Business Asset Disposal Relief (BADR) applies a lower rate of CGT for individuals in certain circumstances, including on the sale of shares in trading companies.

To qualify for BADR, a seller must meet certain conditions which includes (amongst others) having been an officer or employee of the company for the previous two years before the disposal, as well as holding at least five percent of the company’s shares and voting rights.

If all the conditions are met, then the sellers are liable for CGT at the reduced rate of 10%, subject to a lifetime limit of £1 million for qualifying capital gains. For gains in excess of the lifetime limit, the normal rate of CGT applies.

For an individual who has built up their business and is looking to sell, BADR is a valuable relief for when they do eventually sell.

However, effective from 6th April 2025, the BADR rate will be taxed at 14%, meaning on a disposal a seller will have to pay an additional 4% tax – if utilising the whole lifetime limit in one transaction this could be a difference of £40,000 in tax depending on the date of sale. The relief will be eroded further when the BADR rate increases again from April 2026 to 18%.

The conditions for eligibility will remain the same, and the £1 million lifetime limit will continue to apply so while BADR will be less valuable to sellers it will still provide an element of relief to them.

Future tax rises can act as a prompt to business owners who are considering selling to try and achieve a sale before the changes come into force.

If you are considering selling then please get in touch with Matthew Canfield or a member of the corporate team for more information.