If 'Entrepreneurs' Relief' is scrapped in the Autumn Budget, what will this mean for UK business owners?

Insight | by Stephen Kiggins

As the Autumn Budget looms, speculation is growing that Rachel Reeves will announce the abolition of Business Asset Disposal Relief (BADR), formerly known as 'Entrepreneurs’ Relief'.

This will have a significant impact on business owners and entrepreneurs when they sell their companies - increasing the tax they pay on gains and altering the financial landscape for business exits.

"Whitehall insiders confirmed a Bloomberg report
that the chancellor intends to cancel the tax concession."
Financial Times - 18 October 2024

Currently, BADR offers a reduced 10% 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 and The Institute for Public Policy Research [think tanks that Labour has used previously for policy ideation] recommending that CGT rates are aligned with Income Tax rates in the Budget - this would see the top CGT rate levied on gains from the sale of shares in a company for top rate tax payers (and additional tax rate payers) increase to 45%.

How could it impact you?

A worked example

How much CGT you pay depends on your income tax band. Top rate taxpayers currently pay 20% CGT on profits made above their CGT annual allowance of £3,000.

Currently, if you were to sell your business and generate a profit of £2 million from that sale, ‘Business Asset Disposal Relief’ (BADR) [‘Entrepreneurs' Relief’] would reduce the CGT payable on the first £1m to 10%, and the balance would be taxed at 20% [less your CGT annual allowance of £3,000].

The CGT you would currently pay on the sale of your business realising a £2m profit would therefore be £300,000.

If Labour scraps BADR, as a top rate taxpayer you will pay CGT of £400,000 instead of £300,000 on the sale of the business.

If Labour also increases CGT in line with Income Tax rates, as a top rate taxpayer you will pay CGT of £900,00 on the gain of £2 million from the sale of the business.

Business groups have raised concerns, warning that scrapping BADR will disinsentivise entrepreneurship and 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 incentivizing business growth benefits the economy through job creation and investment, multiplying tax revenue over time.

The CEO of ‘Helm’, Andreas Adamides, describes the current sentiment amongst its members as unprecedented.

"We have never seen anything like this.

There are members who are in the process of a [business] sale
who have told buyers they will be pulling out if the sale doesn’t
go ahead before the Budget, and that they won’t sell if CGT goes up.”

Andreas Adamides [CEO of Helm] - Financial Times, October 2024

They 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 significantly more tax-friendly jurisdiction such as Dubai, Portugal, Switzerland and the US are proving to be the most popular choices for high net worth individuals relocating from the UK to protect their wealth.

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].

This communication is for information purposes only and does not constitute financial, legal, or tax advice. Please schedule a meeting to receive advice on international financial planning and wealth management.

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
10% 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 residential property gains
20% on gains from other chargeable assets
28% on gains from "carried interest" if you manage an investment fund

[There are different allowances for trustees and those with non-domiciled status]

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 from 20% to 10%.

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.