If you’re thinking about selling your business soon, it’s important to consider whether relief will be available to help reduce the Capital Gains Tax (CGT) bill for this asset disposal.
Business Asset Disposal Relief (BADR) is currently 10% lower than the higher CGT rate, at a flat rate of 14%. However, as stated in the Autumn 2024 Budget, this will increase to 18% next spring.
This means business owners should aim to sell their company sooner rather than later, as the tax relief will be less advantageous for disposals made on or after 6th April 2026.
Keep reading for a quick summary of the BADR rules and the relevant considerations.
BADR rules for CGT
Previously known as Entrepreneurs’ Relief until 2020, BADR comes with several conditions. To be eligible, you must be a sole trader/director who has owned the company for at least 2 years.
If you’re selling shares rather than the whole trading company, similarly, you must have been a shareholder, employee, or business partner with at least 5% shares for 2 years.
This means if you haven’t reached the two-year mark of ownership or shareholding yet, you’ll have to wait until you do to sell your company if you want to benefit from BADR.
There is also a lifetime limit, which only allows an individual to claim BADR for up to £1 million of eligible gains. This may not be a concern for most company owners, but those who regularly buy and sell companies should bear this in mind when planning acquisitions and sales.
Considering selling your business?
Calculating the taxable gains is one of the most important steps when preparing to sell a business. In most cases, this will simply be the difference between the selling price and the nominal value.
However, there are some circumstances that can complicate the tax situation, such as:
- Selling shares that were inherited or received as gifts
- Involving shares or loan notes instead of a straightforward cash sale
- Phased payment plans that are dependent on future performance
In cases like these, professional guidance is essential to help establish base costs and gains. For help selling your company in the most tax-efficient way, please contact us in advance.
At gbac, our team of accountants in Barnsley includes experienced corporate finance advisers who can help business owners to sell their companies or raise finance.
For more information or to arrange a corporate finance consultation, get in touch by calling us on 01226 298 298 or emailing info@gbac.co.uk.