The changes to Business Asset Disposal Relief (BADR) announced in the Budget will reduce the rewards for those who take the risk of setting up a new business and driving its success.
Craig Simpson, Tax Partner at Bates Weston shares his views:
What are the changes being made to Business Asset Disposal Relief?
The Budget 2024 announced the benefit of Business Asset Disposal Relief (formerly known Entrepreneurs’ Relief), which provides a 10% rate of Capital Gains Tax on the first £1m of lifetime gains, was to be reduced. The favourable 10% rate will remain for disposals up 5 April 2025 and the then the rate of tax will be increased to 14% for disposals on or after 6 April 2025 and 18% for disposals on or after 6 April 2026.
Capital Gains Tax rates were increased from 30 October 2024. Compared with paying the higher rate of Capital Gains Tax of 24%, BADR is worth £140,000 of tax saving (up from the £100,000 pre-Budget), and will reduce to £100,000 and £60,000 in 2025 and 2026 respectively.
The benefit of the relief has been reducing over the years and critics have said that it doesn’t incentivise investment. However, it has been a valuable reward for entrepreneurial activity and so I would argue the critics have rather missed the point. The relief is a reward for the risk taking of setting up and running a business and growing it to a point it can be sold. Nevertheless the benefit is being reduced.
Craig suggests that anyone considering selling or a family succession exercise could consider accelerating the plans to complete before 5 April 2025 to maximise the relief available.
Please contact us if you would like to explore this further.
As always, you are reminded that this article is generic in nature and you should take no action based upon it without consulting your professional advisor.
