Will Entrepreneurs’ Relief Survive the 2025 Budget?
As the Autumn Budget approaches, speculation continues to mount over which tax rates, thresholds and allowances will be revised by the Chancellor as she looks to address the £60.7 billion 2024-25 budget deficit forecast by the Office for Budget Responsibility (OBR) in April.
Business Asset Disposal Relief (still commonly referred to as ‘Entrepreneurs’ Relief’) is part of the UK tax regime that seems to be perennially 'under review’, and indeed in recent years has been subject to a number of revisions, eroding the benefit that it has previously offered to entrepreneurs and business owners. But with economic think tank the 'Institute for Fiscal Studies’ (whose recommendations the Labour government has acted on in the past) having proposed that Business Asset Disposal Relief (BADR) should be scrapped altogether, we look at the potential scenarios, their financial impact, and what business owners can do to prepare, in advance of Rachel Reeve’s budget announcement next month.
What BADR Offers Today
Currently, BADR offers a reduced 14% Capital Gains Tax (CGT) rate on qualifying business disposals up to a lifetime limit of £1 million. For business owners, this relief can represent a significant tax saving at exit, encouraging further entrepreneurship and playing a significant role in retirement planning for many business owners.
Without BADR, business gains would be subject to the standard CGT rate*, and with the Institute for Fiscal Studies (IFS) and The Institute for Public Policy Research think tanks also recommending that CGT rates should be aligned with Income Tax rates, if implemented, this could result in the CGT rate rising from the sale of shares in a company increase from 24% to 45% (and from 24% to 48% in Scotland) for top rate tax payers.
Possible Scenarios in the 2025 Autumn Budget
While nothing is yet confirmed, the potential scenarios shared by analysts and commentators to date are:
1. Full abolition of BADR
· BADR could be scrapped outright, with all business disposals then taxed at the standard CGT rate. This is currently 24% for top rate taxpayers but could increase to 45% (and 48% in Scotland) or more in the future if the CGT rate is aligned with Income Tax rates.
2. Additional incremental rate creep
· Instead of abolishing BADR altogether, the Labour government could continue to pursue a policy of reducing the benefit by closing the gap incrementally between the BADR rate and the standard CGT rate.
· The BADR rate was revised from 10% to 14% in April 2025 and is legislated to increase again from 14% to 18% in April 2026.
3. Lifetime allowance reduction
· The cumulative lifetime limit for qualifying gains of £1 million could be reduced further, having already been reduced from the previous limit of £10 million in 2020 (for disposals on or after 11 March 2020 for Entrepreneur's Relief purposes).
4. Tightened Eligibility
· Additional restrictions on qualifying businesses or ownership periods could be introduced. For example, longer minimum holding periods, or exclusions for certain asset types.
How could it impact you?
A worked example
How much CGT you pay depends on your income tax band. Top rate taxpayers currently pay 24% CGT on profits made above their CGT annual allowance of £3,000.
Suppose you sell your business and generate a profit of £2 million:
· Under current (October 2025) BADR rules: After deducting your £3,000 CGT allowance, the gain is £1,997,000. The first £1m of the gain qualifies for BADR and is taxed at 14% (£140,000). The remaining balance (of £997,000) is taxed at 24% (£239,280). The total CGT payable on the sale would be £379,280.
· If BADR is scrapped: After deducting your £3,000 CGT allowance, the gain is £1,997,000. The 1,997,000 is taxed at 24%, resulting in a CGT bill of £479,280.
· If CGT is aligned with Income Tax: For a top-rate taxpayer, the £2m gain would be taxed at 45%, resulting in a tax liability of £900,000 (or £960,000 in Scotland).
This shows the scale of the potential change, increasing your CGT liability from £379,280 under today’s system to £479,280 if BADR is scrapped, and to as much as £900,000 (and £960,000 in Scotland) if the relief is abolished and CGT rates are aligned with income tax. Figures are rounded for simplicity and do not take account of reliefs or allowances beyond BADR and the £3,000 CGT annual exemption.
What Business Owners May Do Next
If BADR is scrapped or scaled back, UK entrepreneurs may:
· Accelerate exits: Some business owners may consider bringing forward sales before reforms take effect, although this approach carries risks and should be assessed with professional advice.
· Delay sales: Others may prefer to wait for greater political clarity, particularly if they believe future policy changes could reinstate or enhance relief.
· Consider relocation: Relocating to another jurisdiction is an option for some entrepreneurs to explore, but it is complex and can create significant tax and residency consequences.
· Restructure: Alternatives such as trusts, holding companies, or different ownership structures may be reviewed, though the suitability of these depends on personal circumstances.
Business groups have raised concerns, suggesting that scrapping BADR may disincentivise entrepreneurship and could drive entrepreneurs abroad. Groups like the 'Quoted Companies Alliance', 'Innovate Finance' and 'Helm' (a member group for founders of rapidly growing companies) have emphasised that incentivising business growth benefits the economy through job creation and investment, multiplying tax revenue over time.
These 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.
By relocating abroad, UK business owners can avoid the punitive CGT that would be levied on the sale of their business, in order to realise and protect the return from their [long term] investment in it.
For business owners like these, relocating to a more tax-friendly jurisdiction, such as Dubai, Portugal, Switzerland or the US, remains a popular choice, as highlighted in our recent article on the record numbers of high net worth individuals leaving the UK.
Preparing for the Autumn Budget
While the future of Entrepreneurs’ Relief remains uncertain, business owners should consider:
1. Seeking out tax advice as early as possible - to model scenarios and to explore and understand your options.
2. Reviewing exit plans - especially if a sale is already being considered.
3. Exploring international options - residency, relocation, or restructuring abroad may become more attractive.
Speak with us to explore your options
As the Budget draws closer, now is the time to explore your options.
As international financial planners and wealth managers 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 re-locating away from the UK and would like to schedule an initial consultation contact us today or email us at [email protected]
* Current Capital Gains Tax Rates & Allowances
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 gains from other chargeable assets
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 gains from chargeable assets
- 32% on gains from "carried interest" if you manage an investment fund
[For personal representatives and trustees, the rate of capital gains tax is 24% for disposals made on or after 30 October 2024]
Currently, 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;
- to 14% for disposals made on or after 6 April 2025; and
- 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. This is reduced from the previous limit of £10 million for Entrepreneur's Relief purposes.
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.
This article is for information purposes only and does not constitute financial, legal, or tax advice. All content reflects UK legislation in force at the time of writing (September 2025), together with publicly available commentary and policy speculation, and is subject to change without notice. Any potential reforms discussed, including those raised in political debate, think tank publications, or media reports, remain unconfirmed unless specifically enacted in law. Budget measures are subject to Parliamentary approval and may be amended during the legislative process. References to Business Asset Disposal Relief (Entrepreneurs’ Relief), Capital Gains Tax, or other UK tax rules are presented in general terms and should not be relied upon as guidance for individual circumstances. The worked examples provided are hypothetical and for illustrative purposes only. Actual outcomes will vary depending on personal circumstances, tax residency, and future changes to legislation. Tax treatment differs across jurisdictions and is dependent on individual residency status, personal circumstances, and the interpretation of local tax authorities. Professional advice should always be sought before making decisions regarding business disposals, investment strategy, or relocation. Acting without such advice may result in unexpected tax liabilities or residency issues. Past performance of markets or tax regimes is not a reliable indicator of future outcomes.
Last updated 13 October 2025
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