Upcoming Changes to Business Asset Disposal Relief (BADR): Why Business Owners Should Consider Selling Now

Following today’s government budget announcement, significant changes to Business Asset Disposal Relief (BADR) were revealed. These changes will impact business owners looking to sell in the coming years, if not months. It would be fair to say that our team at Business Partnership expected these changes, however unwelcome they may be.

Starting in April 2025, business owners will see an increase in the capital gains tax (CGT) rates applied to BADR, which could substantially impact the proceeds from their business sale. To provide some clarity on today’s announcement, I wanted to break down what this all means for business owners and why selling sooner may be advantageous for those considering it.

Current BADR Framework: Up to ￡1M at 10% CGT

For business owners selling their businesses before April 2025, the current BADR setup allows for a reduced CGT rate of 10% on the first ￡1 million of lifetime qualifying gains. This relief is designed to reward entrepreneurs and long-term business owners, offering a substantial tax break for those looking to exit their businesses. Any gains beyond this ￡1 million threshold are currently taxed at the individual’s standard marginal CGT rate, which will likely rise to 24% for many due to recent rate changes.

April 2025 - April 2026: The Transition to a 14% CGT Rate

From April 2025, the first wave of changes to BADR will come into effect, with the CGT rate on the initial ￡1 million of lifetime gains increasing from 10% to 14%. While this may not seem drastic, this 4% increase represents a potentially significant additional tax burden for business owners looking to maximise the net proceeds of their sales.

For example, if a business owner realises ￡1 million in qualifying gains, the difference between paying 10% and 14% could mean an additional ￡40,000 in tax.

April 2026 Onward: 18% CGT Rate on Lifetime Gains Under BADR

The most substantial change occurs in April 2026, when the CGT rate on the first ￡1 million of qualifying lifetime gains under BADR is set to increase to 18%. This change effectively doubles the tax rate on these gains compared to the current rate, adding a considerable financial impact for business owners.

The progression from 10% to 18% over the next two years can represent a significant difference in the after-tax proceeds from a business sale, making it increasingly less advantageous to hold off on a sale if a business owner is nearing their exit.

Beyond BADR: Increased Rates on Excess Gains

Any gains exceeding the ￡1 million lifetime limit for BADR will continue to be taxed at the taxpayer’s marginal CGT rate. This rate has also seen increases, with the majority of taxpayers now facing a rate of around 24%. With higher CGT rates across the board, strategically planning the timing of a business sale becomes even more critical.

What This Means for Business Owners Considering a Sale

For business owners considering selling, these staged CGT increases make the next 18 months a critical period for planning. Selling before April 2025 allows business owners to benefit from the current 10% CGT rate on up to ￡1 million of qualifying gains. Delaying could mean losing out on a more favourable tax rate and potentially facing up to 80% higher tax on that initial ￡1 million of lifetime gains by April 2026.

Take Action: Secure Expert Guidance from Business Partnership

The government’s BADR changes highlight the importance of forward-thinking financial planning. For business owners who have been contemplating a sale, the window for benefiting from the current 10% CGT rate is closing fast. At Business Partnership , our team is ready to guide you through this evolving landscape and help ensure that your exit strategy is well-timed and optimised for maximum value.

We understand the intricacies of selling a business, including the financial, legal, and strategic considerations involved in timing the sale to maximise value. Our advisors can help assess your business’s position, evaluate the potential impact of these upcoming tax changes, and determine the best approach to move forward.

If you would like to chat further, feel free to send me a direct message, call me on 0131 235 1213, or email me at [email protected]