The Chancellor Rachel Reeves announced the Autumn Budget today – Wednesday 30th October which has introduced significant adjustments to capital gains tax and business asset disposal relief. These changes, aimed at increasing tax revenues and encouraging business investments, have stirred considerable discussion among investors and business owners.
In this release we will be focusing primarily on 2 elements included within the Budget, both the Capital Gains Tax and Business Asset Disposal Relief formerly known as Entrepreneurs Relief.
Implications of Capital Gains Tax Rate Increase
The increase in capital gains tax (CGT) rates is primarily aimed at individuals selling assets, such as second homes or businesses. This revenue boost is expected to support the funding of essential public services while still positioning the UK as having the lowest capital gains tax rate among the G7 European economies. Nonetheless, only a small percentage of the population—369,000 taxpayers—actually paid Capital Gains Tax in the most recent fiscal year, highlighting the relatively narrow scope of its impact.
Capital Gains
The UK government has announced an increase in CGT rates, affecting most business sales via a share sale transaction. The lower CGT rate has risen from 10% to 18%, and the higher rate has escalated from 20% to 24%. These adjustments aim to align the CGT rates more closely with income tax levels, reflecting a strategic shift towards greater tax equity.
Key takeaways
- Following the recent increase in Capital Gains Tax (CGT), most business exits executed through share sales will now incur a 24% tax rate, barring any applicable reliefs. This adjustment represents a 4% increase over the previous 20% rate.
- The new CGT rate takes effect immediately after October 30th.
Rates
| CGT | Pre-Budget Rates and Allowances | Autumn Budget |
|---|---|---|
| Lower Rate | 10% | 18% |
| Higher Rate | 20% | 24% |
| Annual Allowance | £3,000 | £3,000 |
Business Asset Disposal Relief
For small and medium-sized business owners, Business Asset Disposal Relief (BADR) has long been a vital tax-saving measure when selling a business, originally offering relief on up to £10 million per shareholder. However, in March 2020, this relief was significantly reduced to £1 million, resulting in a considerable increase in the tax burden on business exits.
Despite considerable speculation regarding the Autumn Budget, the UK government has announced that the BADR rate will remain at 10% until April 2025. Beyond that point it is scheduled for multiple increases in the coming years, resulting in a reduced level of relief for eligible disposals.
Key takeaways
- The current rate of 10% will be maintained, ensuring no increase in Business Asset Disposal Relief for sales completed prior April 2025 from then it will increase to 14%.
- Business owners will still be able to utilise tax savings on exits in the coming years which is expected to continue with a rate increasing to 18% by 2027.
Rates
| Dates | Business Asset Disposal Relief | Allowance |
|---|---|---|
| Now – April 2025 | 10% | £1,000,000 |
| April 2025 – 2026/27 | 14% | £1,000,000 |
| 2026/27 and beyond | 18% | £1,000,000 |
Our View
Following today’s announcement, we are pleased that the outcome is more favourable than initially anticipated. The retention of Business Asset Disposal Relief BADR is a significant positive outcome from the Autumn Budget, providing continued tax relief for entrepreneurs on business exits. However, outside of BADR, the increase in CGT is disappointing, though not unexpected. The 4% rise, while less than our analysts’ forecasted increase of 7% to 8%, will nonetheless place additional tax burdens on business owners at the point of exit.
From a market standpoint, we anticipate that the recent budget adjustments will heighten interest in sub-£10 million exits, especially as BADR rates are set to rise from 14% to 16% in 2026. For businesses valued above £10 million, we expect a more limited impact, potentially exerting a modest cooling effect as business owners consider succession planning and assess broader market conditions.
Most of the private equity firms we work closely with will all be relieved to discover the bad news of the raised CGT rate on carried interest did not increase as much as estimate. It would seem that the government listened to the British Private Equity and Venture Capital Association (BVCA) and there warnings of increasing this tax.
Based on this small increase we do not foresee the PE acquisition space slowing down. Inevitably the firms may adjust and adapt risk tolerances with acquisitions and their exit strategies. They will continue to be a large part of the UK M&A space and have advised no change to the deal flow they handle.
