We examine the ramifications of the Autumn 2024 Budget
For those looking to sell their business, and who qualify for Business Asset Disposal Relief (BADR) in full on their disposal proceeds, there is a short window (up to 5 April 2025) to effectively preserve their pre-budget tax position on sale.
This is because, although the main Capital Gains Tax (CGT) rates were increased from 20% to 24% from 30 October 2024, the phased increases in the rate of CGT for assets qualifying for BADR do not begin to take effect until 6 April 2025. As such, for those who qualify (essentially directors or employees who hold and have held 5% or more of the share capital for at least two years) up to £1m of the gain on the sale can still be taxed at 10%.
This can be illustrated by way of the following basic example:
A and B have owned and operated a trading company, XYZ Limited, for 10 years. They each own 50% of the shares. A buyer has offered to purchase the company for £2m.
Whilst the main CGT rate has increased to 24%, so the tax on sale could be up to £240K each (£1m @ 24%) (£480K in total), if the sale completes on or before 5 April 2025, the first £1m on sale can continue to qualify for BADR at a tax rate of 10%, so the tax on sale would be up to £100K each (£200K in total), a total tax saving of £280K.
If, however, the sale were to take place on or after 6 April 2025 the rate of tax on assets qualifying for BADR will increase to 14%, so the tax payable in the above example would be up to £140K each (an increase of 40%).
For those who qualify for BADR and who are in the process of or considering disposing of their business this may provide added impetus to ensure the transaction completes in the current tax year.
For more information contact our tax solicitors.
