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Rachel Reeves’ Budget, while aiming to raise revenues, appears to disproportionately hurt business owners, especially those hoping to sell small to medium-sized enterprises. The changes to Capital Gains Tax (CGT) and Business Asset Disposal Relief (BADR), combined with operational cost hikes, create an environment where selling a business at a fair value has become more challenging.
Business owners planning exits must now carefully strategize to minimize tax liabilities and protect their hard-earned value.
To fully understand the impact of these tax rises, it’s important to be aware of the current position:
BADR allows the first £1 million received by an individual from most business sales to be taxed at 10%
This is a lifetime value so once you sell assets over that figure you’ll go into a higher band for any future returns
Not all businesses or individuals are entitled to BADR, and the rules are different for farms and buy-to-let businesses
Individuals must also have held their business assets (shares or property) for at least two years to be eligible for BADR and not have used the £1m allowance previously
In Reeves’ budget two major increases have been announced:
The 10% rate for BADR up to £1million will increase to 14% after April 2025, and then to 18% after April 2026 - see our calculations below to see how this could affect your business sale
The CGT rates also increase as follows:
o Lower rate: 14% after April 2025, 18% after April 2026
o Higher rate: this rises from 20% to 24% after April 2025
However, there are rumours that Reeves is looking to reduce the BADR allowance further in the future, and well-placed sources told the Guardian newspaper that she has even been considering raising the CGT rate to 39%. If you want to sell within the next 18 months, time is of the essence.
Here are some examples of how the tax bill for business sellers will increase dramatically after April 2025. These figures are only for individuals eligible for BADR.
Tax rates for an individual selling a £500,000 business
Date | Tax Yr 23-24 | Tax Yr 24-25 | Tax Yr 25-26 |
Business value | 500000 | 500000 | 500000 |
Allowance | 3000 | 3000 | 3000 |
Taxable | 497000 | 497000 | 497000 |
Tax rate up to £1m BADR | 10% | 14% | 18% |
Tax due up to £1m | 49700 | 69580 | 89460 |
Taxable after £1m | na | na | na |
Tax rate after £1m | 20% | 24% | 24% |
Tax due after £1m BADR | na | na | na |
Total tax | 49700 | 69580 | 89460 |
Tax rates for an individual selling a £1 million business
Date | Tax Yr 23-24 | Tax Yr 24-25 | Tax Yr 25-26 |
Business value | 1000000 | 1000000 | 1000000 |
Allowance | 3000 | 3000 | 3000 |
Taxable | 997000 | 997000 | 997000 |
Tax rate up to £1m BADR | 10% | 14% | 18% |
Tax due up to £1m | 99700 | 139580 | 179460 |
Taxable after £1m | na | na | na |
Tax rate after £1m | 20% | 24% | 24% |
Tax due after £1m BADR | na | na | na |
Total tax | 99700 | 139580 | 179460 |
Tax rates for an individual selling a £2 million business
Date | Tax Yr 23-24 | Tax Yr 24-25 | Tax Yr 25-26 |
Business value | 2000000 | 2000000 | 2000000 |
Allowance | 3000 | 3000 | 3000 |
Taxable | 1997000 | 1997000 | 1997000 |
Tax rate up to £1m BADR | 10% | 14% | 18% |
Tax due up to £1m | 100000 | 140000 | 180000 |
Taxable after £1m | 997000 | 997000 | 997000 |
Tax rate after £1m | 20% | 24% | 24% |
Tax due after £1m BADR | 199400 | 239280 | 239280 |
Total tax | 299400 | 379280 | 419280 |
For business owners selling at under £500,000 the tax bill will nearly double, but these are significant hikes for anyone selling a business. BADR is effectively being phased out.
How to Sell Your Business Fast
If you want to avoid these significant increases, and you want to sell your business soon, the business brokers at KBS can help. Our team knows how to market your business to attract the right buyers quickly, how to negotiate a fair price, and how you can prepare for due diligence so that the process can be much faster.
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