Simplifying Capital Gains Tax and Business Asset Disposal Relief: Is it time to sell?

Charlie Danjoux, Solicitor, Corporate team

Overview
In the 2024 Autumn Budget Rachel Reeves announced upcoming changes to Business Asset Disposal Relief which will soon increase the rate of Capital Gains Tax payable on the sale of all or part of your business. If you are considering selling your business, acting now could help you avoid these higher tax rates.

What is Capital Gains Tax?
Capital Gains Tax (CGT) is a tax you pay on the profit you make when you sell something that has increased in value since you bought it. You are taxed on the gain, not the total amount you receive. This can include on business assets and shares.

What is Business Asset Disposal Relief?
Business Asset Disposal Relief (BADR) is a tax relief that lets you pay a lower rate of CGT when you sell all or part of your business. Currently, with BADR, you pay a reduced CGT rate of 10% on gains from qualifying assets, up to a lifetime limit of £1,000,000.

Eligibility
To qualify for BADR, you need to meet certain conditions including:

• Selling shares: For at least two years before the sale, you must be an employee or office holder of the company (or a company in the same group), and the company’s main activities must be in trading (or the company must be the holding company of a trading group).
• Selling business assets: For at least two years before the sale, you must own the business and be a sole trader or a partner in the business.

Upcoming changes
In the recent Autumn Budget, Rachel Reeves announced upcoming changes to BADR namely:

• From 6 April 2025, the CGT rate for BADR will increase to 14%.
• From 6 April 2026, the CGT rate for BADR will further increase to 18%.

Should you sell?
Despite these changes, it is expected that the mergers and acquisitions market will remain active and will not be significantly affected. However, if you were already considering selling, then acting now could help you make savings before the higher CGT rates come into place.

Get in touch with Charlie Danjoux to find out more about business disposals. Charlie can also answer any queries you may have.