BADR and CGT: are UK tax changes supporting entrepreneurship?

By Tim Lynch, Partner and Head of Private Client

There is a statistic doing the rounds in private client circles at the moment, and it deserves more attention than it is getting. The maximum tax saving available through Business Asset Disposal Relief (“BADR” - formerly Entrepreneurs’ Relief) is now £60,000. That is the entire value of the relief that is supposed to reward a lifetime of building a business in this country.

To understand why that figure matters, it is worth considering how dramatically the relief has changed.  When Entrepreneurs' Relief was introduced in 2008, it offered an effective 10% capital gains tax rate for business owners on £1m of qualifying gains. By 2011, the lifetime limit had increased to £10 million, allowing some entrepreneurs to save up to £1 million in tax on a successful sale. The message was clear: take the risk of building a business and the tax system would reward success.

That signal has been quietly dismantled. In March 2020, the lifetime limit was cut from £10 million back to £1 million overnight. In the Autumn Budget 2024, the rate was increased from 10% to 14% from April 2025, and then to 18% from April 2026. The standard higher rate of capital gains tax was raised to 24% at the same time. The gap between the entrepreneur's rate and the rate everyone else pays has narrowed from fourteen percentage points to six. A relief that was once worth a million pounds is now worth sixty thousand. In many cases, that saving is modest relative to the scale of the gain, the risk taken and the tax ultimately paid.  

What happened to the entrepreneurial bargain?

For decades, there was an implicit bargain between the tax system and business owners. Entrepreneurs accepted risks that employees do not: uncertain income, personal guarantees, long hours and capital at risk. In return, the tax system recognised those risks when the business was eventually sold.

A business owner selling a company for a £5 million gain will now face a CGT bill of approximately £1.14 million, with BADR reducing that liability by only £60,000. For many entrepreneurs, the relief has become a relatively small discount on a very significant tax charge.

BADR still exists, but its value has diminished to the point that many business owners barely factor it into planning discussions.  

Is it just BADR, or is the pattern wider?

BADR does not sit in isolation. Since 2024, business owners have seen capital gains tax rates increase, Business Property Relief restricted, employer National Insurance costs rise and corporation tax settle at 25%. Viewed individually, each change may be defensible. Viewed collectively, they amount to a significant shift in the economics of building, owning and passing on a business.  

What is the government actually saying?

The government appears to recognise the issue. HM Treasury's 2025 call for evidence on support for entrepreneurs acknowledged concerns around scale-up capital and founders relocating overseas. The ICAEW's response called for greater stability and stronger incentives for entrepreneurs to reinvest capital in the UK.  The government's response is still awaited, leaving business owners with little certainty about the future direction of entrepreneurial tax policy.

There have been some positive developments. EIS and VCT limits were increased from April 2026, and EMI rules were expanded to support larger growth businesses. These measures help attract capital to early-stage companies, but they do little for founders approaching an exit. That is where the tax position has deteriorated most significantly.

What should business owners be doing about it?

Business owners considering an exit within the next five years should understand their tax position now, not when a sale is imminent. Reliefs have consistently become less generous over time. Assuming that trend will reverse may prove expensive.

Family businesses face an even broader challenge.  The CGT and IHT legislation must be considered together. The optimal strategy is increasingly determined by timing and structure rather than any single relief.  

For those who have already sold, or who hold significant gains, the reinvestment cycle matters. The government's own call for evidence acknowledged that the UK has a weak reinvestment cycle, with fewer examples of successful entrepreneurs recycling capital into new ventures compared with the US.  

If the tax system does not encourage entrepreneurs to recycle capital into new ventures, that capital is more likely to leave the UK ecosystem altogether.

Anecdotally, that appears to be happening already. In conversations with clients over the past year, I have encountered a noticeable increase in discussions around offshore structures, non-UK residency and overseas investment vehicles.  

Does the UK still reward building a business?

The UK remains an attractive place to build a business. It benefits from a strong legal system, deep professional expertise and access to international markets.

What has changed is the tax environment. The value of BADR has fallen from a potential £1 million saving to £60,000, while other reliefs relied upon by business owners have been scaled back. Whether that ultimately encourages investment, growth and succession remains uncertain.

The UK continues to produce exceptional entrepreneurs. The question is whether the tax system is still encouraging them to build here, invest here and stay here, or whether it is gradually encouraging them to look elsewhere.  

Why is this important to the broader economy?

Encouraging entrepreneurship through the tax system rewards the significant risk involved in starting and growing a business. Favourable tax treatment can encourage business formation, attract investment, drive innovation and create jobs, all of which support long-term economic growth.  

Increasing Capital Gains Tax and reducing reliefs can have the opposite effect by lowering the potential reward for entrepreneurs and investors. This may discourage people from starting or scaling businesses, reduce the flow of investment capital, and ultimately weaken innovation, productivity growth and business creation.  

While a higher CGT rate may be tempting for a government faced with perilously tight public finances, it may fail to increase short-term tax revenues due to the discretionary nature; individuals may delay asset sales or relocate to lower tax jurisdictions.

Critics also argue it risks undermining the long-term economic benefits generated by successful entrepreneurs and growing businesses.

If you are thinking about an exit, a succession plan, or simply want to understand how recent tax changes affect your position, you can find out more about our private client services or get in touch directly.

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This article has been prepared for information purposes only. Formal professional advice is strongly recommended before making decisions on the topics discussed in this release. No responsibility for any loss to any person acting, or not acting, as a result of this release can be accepted by us, or any person affiliated with us.

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