Changes to Business Asset Disposal Relief and the Impact on Exit Planning
The recent modification of Business Asset Disposal Relief (BADR) marks a substantial shift  in tax policy for business owners contemplating an exit strategy. The current framework, which allows qualifying business sales to benefit from a reduced Capital Gains Tax (CGT) rate of 10% on the first £1 million of gains, is set for substantial reform. Commencing in April 2025, the tax rate for BADR will increase from 10% to 14%, followed by a further rise to 18% in April 2026. This transformation of BADR, while receiving relatively modest media coverage, carries substantial implications for business owners’ exit planning strategies and financial outcomes.
Strategic Timing Considerations
The compressed timeline demands swift action, with business owners needing to simultaneously manage buyer identification, negotiation processes, and comprehensive due diligence procedures. The financial implications are substantial – for a qualifying £1 million sale, completion before April 2025 could result in tax savings of £40,000, while delaying until April 2026 might incur an additional £80,000 in tax liabilities. This represents a compelling case for accelerating exit plans where feasible, though careful consideration must be given to whether rushing a sale might compromise overall value.
Market Dynamics and Long-term Strategic Planning
The broader economic context surrounding these BADR modifications suggests complex implications for the business sales market. While the increased tax burden might initially appear to discourage exits, several countervailing factors warrant consideration. The prevailing economic climate, characterised by rising employment costs and sustained higher corporation tax rates, may actually accelerate exit considerations for some business owners. The mathematical reality suggests that diminished take-home earnings could outweigh concerns about increased CGT rates, particularly when considering the cumulative impact of various tax changes on overall business profitability. This dynamic interplay between different tax rates and business costs requires careful modelling to understand the optimal timing for individual cases.
Should you wish to explore how these changes might impact your specific circumstances or discuss strategic planning options, our team of specialists would be pleased to provide detailed, tailored guidance. We understand that each business situation is unique and requires careful consideration of multiple factors beyond just tax implications.
Disclaimer: This insight is provided for informational purposes only and does not constitute financial or legal advice. The implications of BADR changes will vary significantly depending on individual circumstances, and professional advice should be sought before making any decisions based on this information.
Author
Steven Jones is a Partner and CMO at Ballards LLP as well as a keen writer of content regarding complex financial and operational issues. He has a particular interest in the technology and manufacturing sectors.
