Rising rates Around the corner: How the 2024 Budget impacts Business Asset Disposal Relief

The legal, accounting and tax blogospheres have been talking ad nauseam about the immediate changes being implemented as part of the Labour government’s Autumn Budget.

However, business owners need to be aware about the future changes announced by the Chancellor as well.

One such change (effective from 6 April 2025) is to Business Asset Disposal Relief (BADR).

BADR is a tax relief that reduces the Capital Gains Tax rate on qualifying business asset sales (including share sales). Currently capped at a £1 million lifetime limit, BADR helps business owners retain more profit when selling or transferring their business assets.

Increased rates for BADR

Currently, this reduced rate sits at 10%, but following the Budget announcements, this rate will increase, taking effect in two stages:

• From April 6, 2025, the rate will rise to 14%.
• From April 6, 2026, this rate will further increase to 18%.

The rate hikes mean that individuals using these reliefs will now need to account for a higher tax liability when planning exits or restructurings in the near future.

Example: A business owner looking to retire by selling shares in their SME in April 2026 would now face an 18% CGT rate, up from the current 10%, reducing net gains from the sale. This change underscores the need for advanced tax planning, as owners may benefit from considering their timing and structuring sales to optimize post-tax returns.

Lifetime limit for BADR remains unchanged

The budget confirmed that the lifetime limit for BADR will remain at £1 million. This continuity provides some stability by ensuring that business owners continue to benefit from some level of CGT relief on gains up to this threshold (albeit at a less attractive rate).

Special rules and exceptions

The Budget sets out special anti-forestalling rules to accompany the changes that apply in specific scenarios, particularly concerning:

• transfers taking place on or after 30 October 2024 under contracts entered into before this date; and
• share reorganisations and exchanges where elections are made,

so be sure to discuss these and whether they apply to your situation with your tax advisors.

What these changes mean for business owners

The rising rates over the next couple of years introduce new considerations when it comes to succession planning, exit timing, and maximizing sale proceeds.

Owners contemplating an exit within the next few years may benefit from evaluating whether to advance their plans before the April 2025 rate change takes effect. Additionally, those planning share reorganisations or exchanges should review the implications of the new rules and consider alternative structuring options to avoid unintended tax liabilities.

If you’re thinking about a business sale, share reorganisation, or planning an exit strategy or looking to accelerate any of these in light of these changes, our team can help you navigate the new BADR landscape.

Please contact our Corporate Team at corporate@mlplaw.co.uk to assist you and your tax advisors.