Recent changes to Capital Gains Tax (CGT) in the UK, introduced in the Autumn Budget 2024, have significant implications for business owners considering a sale or exit. These updates mean the timing and structure of your business sale could dramatically impact the amount of money you take home. For smaller businesses, particularly those valued at under £1 million, understanding these changes is critical to ensuring a smooth and financially advantageous sale.
Key Changes to CGT Rates on Business Sales
The new CGT rates specifically target larger gains from the sale of business assets, including the well-known Business Asset Disposal Relief (BADR):
- Currently: BADR allows qualifying business owners to pay a reduced CGT rate of 10%.
- From April 2025: This rate will increase to 14%.
- From April 2026: The rate will rise again to 18%.
For smaller businesses valued under £1 million, these increases mean acting before April 2026 could save you a significant amount in taxes.
What Is Business Asset Disposal Relief (BADR)?
Previously known as Entrepreneur’s Relief, BADR provides business owners with a lower CGT rate when disposing of qualifying assets, up to a lifetime limit of £1 million. This relief is particularly beneficial for small business owners, as the regular CGT rates on non-business assets are 18% and 24%. However, with the planned increases to BADR rates, the opportunity to maximise savings is diminishing. Acting sooner rather than later can help you avoid the higher rates set for the future.
Planning Your Sale
Selling a business is a complex process that requires careful planning and preparation. Here are some key considerations to keep in mind:
- Tax Planning: Proper tax planning is essential to ensure you fully benefit from BADR and other available reliefs. Waiting until the last minute can limit your options and increase your tax liability.
- Valuation and Negotiations: Achieving the best sale price requires time to conduct a thorough valuation and negotiate favourable terms. Rushing the process could result in a lower sale price or less advantageous payment terms.
- Due Diligence: Potential buyers will conduct comprehensive checks on your business’s financial health and operational risks. Ensuring your documentation is complete and accurate takes time, so it’s essential to start early.
- Succession Planning: To maintain the value of your business post-sale, having a clear succession plan in place is vital. This ensures that your company remains attractive to buyers and retains its worth.
The Risks of Waiting
Delaying your sale could expose you to several risks:
- Higher Tax Rates: Selling after April 2026 means paying 18% on gains rather than 10%, significantly reducing your net proceeds.
- Increased Buyer Leverage: Buyers may use the upcoming tax changes as a bargaining tool, negotiating lower purchase prices or less favourable terms.
- Compressed Timelines: A rushed sale process can lead to overlooked details, missed opportunities, and unnecessary stress.
Downsides to Selling Now
While selling before April 2026 has clear financial benefits, it’s worth noting that as that deadline draws ever nearer, buyers may seek to capitalise on your urgency. This could result in demands for a lower purchase price, additional warranties, or deferred payment structures. These are points for negotiation and should be carefully managed to protect your interests.
How Richard Riley and Associates Can Help
Selling a business is a major milestone, and navigating the complexities of tax planning, valuation, and negotiations requires expert support. One critical aspect to consider is that Capital Gains Tax (CGT) is payable upfront, calculated based on the agreed value of your business at the time of sale. However, if circumstances result in you receiving less than the agreed amount – perhaps due to a decline in your business’s value post sale – you may end up having overpaid CGT. In such situations, a skilled accountant can help you reclaim the excess tax, ensuring you’re not out of pocket.
At Richard Riley and Associates, we offer personalised financial advice to help you maximise your sale proceeds while minimising tax liabilities. Furthermore, our Legal Partner can assist with drafting and reviewing Founder and Shareholder Agreements, ensuring your business is thoroughly prepared for sale from the outset.
If you’re considering selling your business, don’t wait until the last minute. Contact us today to start planning your exit and secure the best possible outcome for your hard-earned success.