2024 – is this the year for seismic changes to the way businesses are bought and sold?

Business Asset Disposal Relief (BADR), previously called Entrepreneurs’ Relief, is soon to undergo major changes in the UK. Starting in April 2025, the way business sales are taxed will be significantly different. These updates mark an important shift in the tax rules for business owners planning to sell their businesses.

What is BADR?

Currently, BADR helps business owners save on taxes when selling their businesses. It lets them pay only 10% Capital Gains Tax on qualifying sales, up to a lifetime limit of £1 million. (BADR explained – impending changes to Business Asset Disposal Relief, 2024) This relief has been a big help for entrepreneurs, making it cheaper to sell their businesses compared to normal tax rates.

To receive BADR when selling a company, you need to meet some key rules. You must work for the company (as an officer or employee), own at least 5% of the shares, have 5% voting power, and be entitled to 5% of the profits and assets if the company closes. These rules must be met for at least two years before you sell. (Business Asset Disposal Relief – changes following the Budget, 2024)

What is happening to the tax?

The government is increasing the tax rates for BADR in stages. The rate is currently sitting at 10%, however it will rise to 14% in April 2025 and then rise again to 18% from April 2026 onwards. (Business Asset Disposal Relief – changes following the Budget, 2024).

The BADR changes are part of bigger tax updates. Employers will have to pay more towards National Insurance, going from 13.8% to 15%. The amount before they start paying will drop from £9,100 to £5,000. On the bright side, the Employment Allowance will go up to £10,500. (Chancellor chooses a Budget to rebuild Britain, 2024)

These changes will mean business owners save less on taxes when selling their businesses. Right now, the maximum tax saving with BADR is £140,000 compared to standard rates. From April 2025, this will drop to £100,000, and by April 2026, it will fall further to £60,000. (Business Asset Disposal Relief – changes following the Budget, 2024).

Any support on the horizon?

To help with the changes, the government is giving businesses some support. Investment schemes like The Enterprise Investment Scheme and the Venture Capital Trust will stay until 2035, letting you get 30% tax relief and avoid capital gains tax on profits. For businesses, there’s 40% tax relief for shops, restaurants, and hotels, a freeze on small business taxes, and lower business rates from 2026. (Boost for budding entrepreneurs as investment schemes extended, 2024)

How to Plan for the Changes

Business owners need to carefully plan around these tax changes. Selling before April 2025 means you can still benefit from the 10% tax rate. The timing of your sale and when contracts are finalised will affect the tax rate you pay. For long-term planning, it’s important to know how much your business is worth now, decide the best time to sell, investigate other ways to sell your business, and get professional advice to save on taxes. (Business Asset Disposal Relief – changes following the Budget, 2024)

BADR will still be available; however, the benefits of the scheme will be reduced. These changes show the government’s effort to balance supporting business owners with raising more money from business sales.

The BADR changes are part of a bigger plan for corporate taxes. The 25% corporation tax rate will remain, and businesses can still use current Research & Development relief systems. There’s also a commitment to permanent full expensing and keeping the £1 million Annual Investment Allowance. (Chancellor chooses a Budget to rebuild Britain, 2024)

These changes are a big shift in how businesses are taxed in the UK, therefore entrepreneurs and business owners need to carefully consider when planning to sell. Seeking professional advice and planning ahead will be key to making the most of this new tax framework. 

References

BADR explained – impending changes to Business Asset Disposal Relief. (2024, November). Retrieved from in-accountancy.co.uk: https://www.in-accountancy.co.uk/resources/news/badr-explained-impending-changes-to-business-asset-disposal-relief/#:~:text=Business%20Asset%20Disposal%20Relief%20(%E2%80%9CBADR,you%20make%20on%20the%20sale.

Boost for budding entrepreneurs as investment schemes extended. (2024, november 8). Retrieved from Judge Priestley: https://www.judge-priestley.co.uk/site/news/articles/boost-for-budding-entrepreneurs-as-investment-schemes-extended

Business Asset Disposal Relief – changes following the Budget. (2024, November). Retrieved from Payne Hicks Beach: https://www.phb.co.uk/article/business-asset-disposal-relief-changes-following-the-budget/

Chancellor chooses a Budget to rebuild Britain. (2024, October). Retrieved from gov.uk: https://www.gov.uk/government/news/chancellor-chooses-a-budget-to-rebuild-britain

Gov.uk. (n.d.). Retrieved from Boost for UK growth as start-up investment schemes extended: https://www.gov.uk/government/news/boost-for-uk-growth-as-start-up-investment-schemes-extended