We have a few clients who are currently in the process of closing their businesses.
They’ve come to a natural end and they’re looking forward to retirement. But timing of the natural end might have been partly prompted by the increase in tax rates coming in April.
Business owners can benefit from Business Asset Disposal Relief (BADR) when selling or closing a business. (Old schoolers like me will always call it by its old name – Entrepreneurs Relief.)
Basically, you can get a reduced tax rate of 10% on selling all or part of a business, or when taking the cash out on closure.
But, the rate is going up in April! The new rate will be 14%. That’s a 40% tax increase.
And from April 2026 it will increase to 18%. That’s 80% more than the current rate!
Therefore, if you are thinking of selling or retiring, it’s worth doing it sooner rather than later.
There are some boxes you need to tick to qualify for BADR. In simple terms, you must:
- Own a trading business, as opposed to an investment business – for example, property rentals don’t qualify
- Own the business or shares for a minimum of 2 years prior to sale/closure.
- Serve as an employee or director of the company throughout that 2-year period (for shares).
- Hold at least 5% of the shares, voting rights, and profit entitlement (for shares)
And there’s a lifetime limit of £1m that you can claim the reduced rate on.
While I’m at, it’s probably worth just recapping the rates on other Capital Gains because these all changed last October.
If you sell an asset, for example a property or shares, you get an annual tax-free amount of £3,000 and then the tax rates are:
- Basic rate taxpayer – 18%
- Higher rate taxpayer – 24%.
If you’re a basic rate taxpayer and the gain takes you through the higher rate limit, you’ll pay at a blended rate, i.e. partly at 18% and partly at 24%.
Of course, there are other changes coming in April and I’ll keep you informed of them too.
In the meantime, if you have any questions, give me a ring on 0151 380 8084.
Many thanks
Jon