Capital Gains Tax Changes in the Autumn Budget: Key Implications for Business Owners Considering a Sale

Today’s Budget made significant changes to Capital Gains Tax (CGT), which will impact business owners contemplating a sale. These changes were not entirely unexpected, as we have reported in a series of articles – Business Asset Disposal Relief – Potential Changes Post-Election.

We have set out below an overview of the key changes and considerations for business owners.

Key rate increases for Capital Gains Tax

• Increase in main CGT rates: Effective from 30 October 2024, the main rates of CGT will increase. The lower rate of CGT will rise from 10% to 18% and the higher rate will climb from 20% to 24%. For business owners, these increased rates mean potentially higher tax liabilities upon selling assets or stakes in their businesses.
• Business Asset Disposal Relief (BADR) adjustments: BADR, formerly known as Entrepreneurs’ Relief, allows for lower CGT rates on qualifying business disposals. The relief is capped at a lifetime limit of £1 million of gains. Rather surprisingly, BADR has not been entirely abolished. The CGT rate for this relief will increase incrementally: from the current 10% to 14% as of 6 April 2025 and further to 18% from 6 April 2026.

Practical Considerations for Business Owners

These CGT changes have substantial implications for business owners considering a sale in the near future:

• Accelerated sales: With the phased increase in CGT rate for BADR, business owners contemplating a sale might consider doing so before the next rate hike on 6 April 2025.
• Impact on valuation and sale timing: Prospective sellers should be aware that increased CGT liabilities could affect the net proceeds from a sale, potentially impacting business valuations and buyer negotiations. For owners near retirement or with succession plans, these rate changes may necessitate a review of financial outcomes to ensure planned goals are still achievable.

Conclusion

James Hutchinson, a Partner at Beale & Co said:

“Business owners will be relieved that Business Asset Disposal Relief has not been entirely abolished. However, the phased increase in BADR rates and the 20% hike in CGT means the changes may significantly impact net sale proceeds. It is essential for business owners to review their exit strategies.”

Full details of the changes can be found in the text of the Autumn Budget which is available at: Autumn Budget 2024 – HC 295.

If you are contemplating the sale of your business, or have any queries regarding this article, please feel free to contact James Hutchinson.