
The Autumn 2024 Budget introduced several changes to Business Asset Disposal Relief (BADR), a vital tax relief for business owners seeking to reduce Capital Gains Tax (CGT) liabilities when selling all or part of their business. The changes, though not as drastic as anticipated, still have significant implications for business owners. Our Head of Tax Elizabeth Roberts outlines what you need to know.
Key Changes to BADR Rates
The much-discussed abolition of BADR has not materialised. However, the rates are set to rise over the next two years. From April 2025, the BADR rate will increase from 10% to 14%, and by April 2026, it will align with the lower CGT rate of 18%.
These changes will bring BADR closer in line with the main CGT regime, reflecting the government’s goal of balancing tax advantages for entrepreneurs with the need for a fair tax contribution. This phased increase gives business owners time to plan their tax strategy ahead of the changes.
It’s important to note that the lifetime limit for BADR remains unchanged at £1 million following the Budget.
What should Business Owners Do Now?
The phased nature of these changes provides a window of opportunity to reassess tax strategies. For those considering selling their business, it’s crucial to review potential disposals and whether acting before the new rates take effect in April 2025 could reduce tax liability.
The timing of a sale can make a significant difference to your financial position. Delaying a sale until after the new rates could result in a substantially higher tax bill, potentially impacting long-term financial goals. Early preparation can ensure you’re in the best possible position to maximise relief and minimise liabilities.
Planning Ahead: Key Considerations
While BADR remains an excellent relief for business owners, reducing CGT on qualifying disposals, the increase in the relief rate underscores the importance of planning ahead. Here are some ways to ensure that you take full advantage:
- Review Business Valuations: Regular business valuations will ensure you’re in the best possible position to qualify for BADR.
- Consider Restructuring: Review your business’s ownership structure and assess if restructuring could help optimise reliefs.
- Timing of Sale: Accelerating a sale before April 2025 could allow you to take advantage of the lower rates.
- Tax-Free Allowances: Maximising tax-free allowances and transferring assets between spouses or partners may reduce the overall tax burden.
- Business owners must also ensure they meet all qualifying criteria, such as holding shares or assets for at least two years and being actively involved in the business.
Helping You Prepare
At Thorne Widgery, we understand the complexities of BADR and are committed to helping business owners navigate these changes. Proactive tax planning will ensure your financial strategy remains aligned with the new rates. If you’re considering a sale, now is the time to consult with us.
Contact us today to discuss how the changes to BADR may affect you, and let us help you optimise your tax position.