BADR Changes: What to Expect in 2025 for Business Asset Disposal Relief
Business Asset Disposal Relief (BADR), previously known as Entrepreneurs’ Relief, can offer significant tax savings for business owners who sell or transfer qualifying business assets. Currently, entrepreneurs can pay a reduced rate of 10% Capital Gains Tax (CGT) on gains from qualifying disposals, rather than the higher rate of 24%. However, significant changes are on the horizon for BADR, starting 6 April 2025. These changes, part of the Autumn Budget 2024, will affect business owners planning to dispose of assets and will have implications on their tax planning strategies.
This article will explain the key changes to BADR coming in April 2025, including adjustments to the tax rate, the lifetime limit, and how business owners can prepare for these shifts.
What is Business Asset Disposal Relief (BADR)?
Business Asset Disposal Relief (BADR) allows business owners to benefit from a reduced CGT rate of 10% when they sell or transfer qualifying business assets. It applies to certain types of business assets, including shares in trading companies or assets used within a business, and is designed to encourage entrepreneurship and reward business owners for their efforts in growing a business.
How Does Business Asset Disposal Relief Work?
BADR applies when individuals dispose of shares in a trading company, or assets used in a business that qualifies for the relief. For example, if an individual sells shares in a company in which they hold at least 5% of the share capital and have been actively involved in its management, they may be eligible for BADR.
Eligibility for BADR generally requires the following:
- At least a 5% shareholding in a company with active participation.
- The business must be a trading company or part of an active trade.
The relief is available for gains up to £1 million over the course of a lifetime, meaning business owners could pay a reduced tax rate on qualifying gains up to this limit.
Key Changes to Business Asset Disposal Relief from April 2025
Starting from 6 April 2025, there will be significant changes to the BADR framework. These changes are expected to impact entrepreneurs and business owners, particularly those who are planning large asset disposals. Here’s what business owners need to know:
Increase in BADR Tax Rate
One of the key changes coming in April 2025 is an increase in the BADR tax rate. Currently, the tax rate on qualifying disposals is 10%, but from 6 April 2025, this rate will rise to 14%.
Impact of the 2025 BADR rate increase:
- Business owners who were planning to dispose of business assets may want to accelerate their sales before April 2025 to benefit from the lower 10% rate.
- After the change, disposals made after April 2025 will be taxed at 14%, leading to a higher tax liability for entrepreneurs who wait to sell their business assets.
Further Increase in BADR Tax Rate in 2026
The changes to BADR don’t stop in April 2025. The UK government intends to increase the tax rate again on 6 April 2026, when the BADR rate will rise from 14% to 18%.
Impact of the 2026 BADR rate increase
- Business owners should consider strategic planning around the 2026 tax rate increase. Those considering disposals after this date will face an even higher tax burden.
- Entrepreneurs may want to evaluate their business exit strategy and consider making asset disposals before April 2026 to avoid the increase.
Lifetime Limit Remains at £1 Million
While the tax rate is increasing, the lifetime limit for BADR will remain at £1 million. This means that business owners can still benefit from BADR on qualifying gains up to £1 million over their lifetime.
Business owners with significant gains from the disposal of assets can still claim BADR up to the £1 million limit. However, with the increase in the tax rate, it is crucial for entrepreneurs to time their disposals carefully to minimise their tax exposure.
Impact of Changes on Family Business Disposals
There are no significant changes planned for the way BADR applies to family business disposals under the new rules. However, the government will continue to scrutinise the relief’s use in family transactions to prevent potential abuse.
Family business owners looking to transfer assets to family members should be aware that BADR will continue to apply as long as the transferee meets the required ownership and active participation criteria.
Business owners should seek professional advice when transferring assets to ensure they comply with all rules and take full advantage of the relief.
Preparing for Changes to Business Asset Disposal Relief
The changes to BADR that are set to take effect from April 2025 require proactive planning. Here are some key steps business owners should take:
- Review Your Exit Strategy: Business owners should start reviewing their exit strategies well in advance of the 2026 changes. Disposing of business assets before the tax rate increase will help mitigate higher taxes in the future.
- Consider Timing of Disposals: With the rate increase in 2025 and 2026, timing will be key. Entrepreneurs should evaluate whether it’s beneficial to dispose of assets before these changes take effect.
- Consult with Tax Professionals: Given the complexity of tax planning and the significant implications of BADR changes, it’s critical to consult with a qualified accountant or tax advisor such as Alexander & Co, who can help develop a strategy that aligns with future tax expectations. Please contact us for further information on how we can advise.
Conclusion
The changes to Business Asset Disposal Relief (BADR) that will take effect from April 2025. these represent a significant shift in the taxation of business asset disposals. With the tax rate increase to 14% in 2025, followed by a further rise to 18% in 2026, business owners will face higher taxes on qualifying gains if they delay their asset disposals.
For those planning to dispose of assets and take advantage of the lower tax rates, it’s advisable to act before the next increase takes place in April 2026. Business owners should carefully consider their tax strategies and seek expert advice to ensure they are making informed decisions and maximising tax relief before the changes take effect.
Contact Alexander & Co for advice on Business Asset Disposal Relief
For further assistance on Business Asset Disposal relief, please contact Alexander & Co to discuss how we can assist you. We can also assist clients with a comprehensive range of taxation and accountancy services. This includes wider issues surrounding business acquisitions, disposals and mergers.
To contact us, please use the contact form on this page. Alternatively, you can email info@alexander.co.uk or telephone one of our office on either 0207 167 7220 or 0161 832 4841.
