The recent budget announcements by Chancellor Rachel Reeves introduce several tax changes that could significantly impact the buying and selling of businesses in the UK. Key measures include:
Increase in Capital Gains Tax (CGT):
The budget raises the lower rate of CGT from 10% to 18% and the higher rate from 20% to 24% for most assets, excluding property sales.This change means that individuals selling business assets will face higher tax liabilities on their gains, potentially reducing the net proceeds from such sales.
Effective from 30 October 2024;
- The lower rate of CGT rises to 18% from 10%; an 80% uplift
- The higher rate of CGT rises from 20% to 24%; an 20% uplift
The CGT rates on residential property remain 18% and 24%.
Business Asset Disposal Relief (BADR) previously Entrepreneurs Relief:
The reduced tax rate that Entrepreneurs pay on successfully selling their businesses is set to rise. During its period of being called Entrepreneurs Relief and BADR it had been a tax rate of 10%, most recently being capped at 10% on the first £1m. The tax rate is set to increase to 14% from April 2025 and 18% from April 2026.
Employer National Insurance Contributions (NICs):
Employers NIC rate increases by 1.2% to 15% (from 13.8%). The earnings threshold at which Employers start to pay NIC will reduce from £9,100 to £5,000. To, somewhat, counteract the Employers NIC rate increase, the Employment Allowance (a credit against Employers NIC) for ‘small’ employers will increase from £5,000 per annum to £10,500.
Effects on Business Transactions
The recent budget announcements by the Chancellor are set to influence business transactions, particularly regarding taxes and incentives:
- Changes in Capital Gains Tax (CGT): Higher CGT rates will mean that owners selling businesses will face increased tax liabilities on their profits. This could lead to reduced net proceeds, potentially discouraging some business owners from selling or prompting them to adjust their valuation expectations.
- Potential Adjustments to Business Asset Disposal Relief (BADR): Any reforms to this relief, which currently allows for a reduced CGT rate on certain business disposals, could further affect the financial outcome of selling a business, as many owners rely on BADR to lower tax on sale proceeds.
- Employer National Insurance Contributions (NICs): An increase in employer NICs could impact ongoing operational costs, potentially influencing how buyers evaluate a business’s financial health, especially for those considering acquiring smaller businesses or those with substantial employee costs.
- Minimum Wage Rate Changes; National Living Wage and National Minimum Wage rise in April 2025;
- Age 21 and over will be £12.21 (from £11.44) a 17% increase in 2 years
- Age 18 – 20 will be £10.00 (from £8.60) a 33.5% increase in 2 years
- Under 18 will be £7.55 (from £6.40) a 43% increase in 2 years
- Apprentice will be £7.55 (from £6.40) a 43% increase in 2 years
Together, these factors could make both buyers and sellers more cautious in structuring deals, possibly driving more strategic planning and tax optimisation around transactions.