Budget 2024 – Changes to Tax for those looking to sell their businesses

by | Nov 5, 2024 | Blog, Legal Updates

The Autumn Budget 2024, presented by Chancellor Rachel Reeves, has introduced several significant changes that will impact small businesses in the UK. This blog will outline the key updates, with a focus on the changes to Capital Gains Tax (CGT) and Business Asset Disposal Relief (BADR).

Changes to Capital Gains Tax (CGT)

One of the most notable changes in the Autumn Budget is the increase in CGT rates. Effective from October 30, 2024, the lower CGT rate will rise from 10% to 18%, and the higher rate will increase from 20% to 24%. This change will particularly affect business owners selling shares valued at over £1 million or those who have exhausted their BADR allowance. While this represents a significant increase, it is still below some earlier projections that suggested CGT rates might align with income tax rates.

Updates to Business Asset Disposal Relief (BADR)

BADR, previously known as Entrepreneurs’ Relief, has also seen changes. Currently, qualifying business sales benefit from a reduced CGT rate of 10% on the first £1 million of gains. Under the new rules, the BADR rate will gradually increase, reaching 14% by April 2025, and aligning with the main lower CGT rate of 18% by April 2026. This phased increase means that business owners planning to sell should act quickly to secure the current 10% rate, as delaying could result in significantly higher tax liabilities.

The changes to CGT and BADR make a real difference for someone selling above £1m. Consider this example:

Graham is a sole shareholder of ABC Limited. He is seeking to sell his shares for £5m. I’ve assumed Graham is a higher rate tax payer.

Pre-Budget:  Sale after 14th April 2025 Sale after April 2026
Disposal at £5m Disposal at £5m Disposal at £5m
£1m BADR @ 10% = £100,000 tax  £1m BADR @ 14% = £140,000 £1m BADR @ 18% = £180,000
£4m at CGT rate at 20% = £800,000 £4m at CGT rate of 24% = £960,000 £4m at CGT rate of 24% = £960,000
Total tax paid £900,000 Total tax = £1,100,000 – additional tax liability of £200,000 Total Tax paid = £1,140,000 – additional tax liability of £240,000 vs pre-Autumn 2024 budget. 

Other Notable Changes

In addition to the changes in CGT and BADR, the Autumn Budget 2024 includes several other measures aimed at supporting small businesses:

  • Investment in Innovation: The budget promises greater investment in innovation, which could provide new opportunities for small businesses to access funding and support for research and development.
  • Minimum Wage Increase: The minimum wage will see a substantial increase to £12,20 per hour, which, while beneficial for employees, will increase operational costs for small businesses.
  • Increase to Employers National Insurance contribution to 15% – this will increase costs for small businesses, although the increased £10,000 employment allowance reduces the impact for micro businesses.
  • Support for Green Initiatives: There are new incentives for businesses to adopt green technologies and practices, including grants and tax breaks for those investing in sustainable solutions.
  • Digital Transformation Grants: Small businesses can apply for grants to support digital transformation projects, helping them to modernize their operations and improve efficiency.
  • Changes to Employee Ownership Trusts (EOTs) which seek to limit sellers’ control over businesses once sold.

Conclusion

The Autumn Budget 2024 brings a mix of challenges and opportunities for small businesses. The increases in CGT and BADR rates mean that business owners planning to sell should consider acting sooner rather than later to minimise their tax liabilities. Meanwhile, the additional support for innovation, green initiatives, and digital transformation offers avenues for growth and development. As always, small business owners should seek professional advice to navigate these changes effectively and make the most of the available opportunities.

If you’re looking to sell your business, then get in touch today.

Steven Mather

Steven Mather

Solicitor

Hello, I’m Steven Mather, Solicitor – thanks for reading this blog I hope you found it useful.

As you’ll see from my site here, I’m an expert business law solicitor (sometimes called a corporate solicitor, commercial solicitor, company solicitor, but they’re all about advising businesses).

If you’re looking for Remarkablaw advice – fixed fees, great service, and a smile, then get in touch with me today.

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