Post-Budget Challenges and Solutions for UK Entrepreneurs and Business Owners

Insight | by Stephen Kiggins

UK entrepreneurs and business owners now face the prospect of increased Capital Gains Tax [CGT] rates and reduced Business Asset Disposal Relief [BADR] when they come to sell their businesses. How can they meet this challenge?

Capital Gains Tax [CGT] was increased in the Budget from 20% to 24% for higher and additional rate taxpayers with immediate effect (from 30 October), payable on profits made from the disposal of assets (in excess of the CGT annual personal tax-free allowance of £3,000) including - importantly for entrepreneurs and business owners - the sale of a business.

Business Asset Disposal Relief [BADR] previously known as ‘Entrepreneurs Relief’, and Investors’ Relief, providing a discounted CGT rate for business owners, entrepreneurs and investors in their businesses on the initial one million pounds of profit - will be reduced from 6 April 2025 with the applicable discounted rate of CGT increasing from 10% to 14%, and from 14% to 18% on 6 April 2026. The lifetime limit for the relief will remain one million pounds.

Many entrepreneurs and business owners are unwilling to see this tax on their life's work dramatically erode the wealth that they had planned to rely on in retirement and pass on to their children, and are exploring their options to relocate abroad and maintain non-UK tax residency for at least five years in order that any gains realized on their assets would not be subject to UK CGT.

Worked Example

Scenario:

Jane, a top-rate taxpayer in the UK, has decided to sell her agency business, valued at £2 million.

Option 1 - Jane remains in the UK
If Jane were to sell her agency now, while still a UK resident, she would face the following CGT obligations:

Annual CGT Allowance: The first £3,000 of profit is exempt from CGT.
CGT on Remaining Profit: Assuming a profit of £2 million, Business Asset Disposal Relief [BADR], formerly known as Entrepreneurs’ Relief, would apply. This relief reduces the CGT rate on the first £1 million of profit to 10%. The remaining profit, minus her annual allowance, would be taxed at the higher CGT rate of 24%.

CGT at 10% [with BADR] on first £1 million: £1 million x 10% = £100,000
CGT at 24% on remaining £997,000: £997,000 x 24% = £239,280
TOTAL CGT Payable: £100,000 + £239,280 = £339,280

Future CGT Increases
If Jane sold her business after 6 April 2025, the CGT liability on the same sale would rise to £380,000, and if the sale took place after 6 April 2026 the CGT payable would increase to £420,000 if she remained in the UK.

Option 2 - Jane relocates to the UAE
If Jane establishes and maintains non-UK tax residency for at least five years, any gains realised would not be subject to UK CGT.

It’s important to note that if Jane were to return to the UK within five years, the Temporary Non-Residence Rules would allow HMRC to tax gains on assets sold while she was abroad. Maintaining her non-UK tax resident status is therefore essential.

By selling her business after establishing non-UK tax residency and maintaining this for five years Jane could potentially avoid incurring up to £420,000 in CGT on the sale of her business.

For entrepreneurs, business owners and farmers looking to hand their business on to their children (or beneficiaries) Business Property Relief [BPR] and Agricultural Property Relief [APR] have also been reduced, limiting relief to 50% for assets over £1 million from April 2026, impacting the succession plans for businesses and family farms.

Speak to our expert team to explore your options today

As international financial planners we can provide you with expert advice on protecting your wealth and securing your financial future, so if you are thinking about your business exit or relocating away from the UK and would like to schedule an initial consultation contact us today or email us at [email protected]

This communication is for information purposes only and does not constitute financial, legal, or tax advice. Please schedule a meeting to discuss your circumstances and to receive personal financial planning advice.

Current Capital Gains Tax Rates & Annual Allowance

Individuals [including self-employed sole traders, partners in business partnerships, and company owners] are given an annual CGT allowance of £3,000 [down from £6,000 in the 2023/24 tax year and £12,300 in the 2022/23 tax year].

CGT is payable on any profits in excess of the CGT Annual Allowance, from the sale of assets in that tax year. The allowance resets annually on April 6 when the new tax year begins.

18% on residential property
18% on gains from other chargeable assets [increased from 10% on 30 October 2024]

CGT is payable on any profits in excess of the CGT Annual Allowance, from the sale of assets in that tax year. The allowance resets annually on April 6 when the new tax year begins.

24% on residential property gains
24% on gains from other chargeable assets [increased from 20% on 30 October 2024]

[For personal representatives and trustees, the rate of capital gains tax will also change from 20% to 24% for disposals made on or after 30 October 2024]

Business Asset Disposal Relief [previously called 'Entrepreneurs’ Relief' - updated in the Finance Act 2020)] reduces the rate of Capital Gains Tax (CGT) on disposals of businesses or business assets.

For individuals with assets that qualify for Business Asset Disposal Relief, the CGT will change:

from 10% to 14% for disposals made on or after 6 April 2025, and
from 14% to 18% for disposals made on or after 6 April 2026.

There is a cumulative lifetime limit for qualifying gains of £1 million for disposals on or after 11 March 2020.
A claim for Business Asset Disposal Relief must be made on or before the first anniversary of the 31 January following the tax year in which the disposal is made.