Selling a business is one of the most important financial decisions you will ever make, and timing can make all the difference.
If you are considering a sale, Business Asset Disposal Relief (BADR) could help you retain more of the value you have built.
Formerly known as Entrepreneurs’ Relief, BADR allows qualifying individuals to pay a reduced 10 per cent Capital Gains Tax (CGT) rate on gains up to £1 million. This can result in savings of up to £100,000 compared to the standard 20 per cent CGT rate.
However, with tax reforms on the horizon in April, business owners should consider accelerating their plans to secure this relief before any changes take effect.
What is BADR, and why does it matter?
BADR is designed to reward entrepreneurial risk-taking by reducing the tax burden on the sale of a business.
This relief can mean a substantial amount of tax savings. For instance, a qualifying £1 million sale could save you £100,000 in tax compared to paying the standard CGT rate.
However, eligibility is strict. To qualify:
- You must own at least five per cent of shares or voting rights in the business.
- The business must have been a trading company, not an investment company, for at least two years.
- You need to have been involved in the business as a shareholder, partner, or sole trader for at least two years before the sale.
BADR can also apply to gains made on the disposal of personally held assets used in the business, such as property, under specific conditions.
Upcoming changes to BADR rates
The October Budget confirmed that the Government is set to increase the Business Asset Disposal Relief (BADR) tax rate from 10 per cent to 14 per cent, effective from April 2025, and then again to 18 per cent from April 2026.
While this change is less severe than initially speculated, it still represents a large increase in the tax burden for business owners planning a sale.
For instance, on a £1 million qualifying gain, the tax payable would rise from £100,000 under the current rules to £150,000 under the new rate, a difference of £50,000.
If you are already considering selling your business, completing your transaction before April 2025 is critical to locking in the current 10 per cent rate and maximising your returns.
Acting now could save you thousands and ensure you make the most of the relief while it is still available.
Preparing your business for sale
When considering the sale of your business, make sure you are well prepared to do so, as it is easier to sell and can also command a higher valuation.
Here are the key steps to take:
Review your finances
Ensure your financial records are accurate, up-to-date, and compliant.
Buyers will scrutinise your accounts, so being prepared reduces delays and instils confidence.
Conduct a valuation
Understanding the value of your business value allows you to negotiate successfully and identify areas where improvements could improve your sale price.
Confirm eligibility
Check that your ownership structure meets BADR criteria.
For example, if you hold shares, ensure they meet the five per cent threshold and that the business has been trading for the required period.
Prepare for due diligence
Buyers will likely want to review contracts, legal compliance records, and financial statements.
Being organised and transparent can streamline the process and keep the sale on track.
What happens if you wait?
Delaying a sale until after April’s rate increase will lead to higher tax liabilities and reduce the overall profit of a business you have worked tirelessly to make valuable.
If you are thinking about selling, now is the time to assess your options, prepare your business, and ensure you are in the best position to take advantage of the current relief, before the new rates kick in.
Contact us today to discuss your plans and discover how we can help you handle the process, optimise your returns, and secure a tax-efficient sale.