Autumn Budget 2024 Review: How Is Business Asset Disposal Relief Changing?
After much anticipation, Chancellor Rachel Reeves has finally delivered the new government’s first budget. The Autumn Budget, which was published on the 30th October 2024, announced widespread adjustments to fiscal policy with many changes directly impacting business owners in the UK such as amendments to Business Asset Disposal Relief (BADR).
The favourable tax rates of BADR have long made it a crucial aspect of tax-efficient voluntary liquidation. The relief can make a significant financial difference to those considering the Members Voluntary Liquidation (MVL) process by potentially reducing Capital Gains Tax to just 10%. However, the changes to Business Asset Disposal Relief announced in the Autumn Budget are set to significantly shake up this process so we have clarified them for business owners planning their next steps in this article.
Business Asset Disposal Relief – The Current State Of Play
Formerly known as Entrepreneurs’ Relief, Business Asset Disposal Relief is a tax relief that enables business owners to sell or dispose of qualifying assets at a reduced rate of Capital Gains Tax. For business owners closing their solvent company via an MVL, BADR can offer substantial tax savings by allowing qualifying gains to be taxed at 10% as opposed to the usual rate of 20%. This is particularly valuable when owners wish to exit a business when retiring or when the business has reached the end of its useful life, as it ensures that they get the most value from their hard work and wealth accrued in the business over time.
Key Changes To BADR In The Autumn Budget
In the Autumn Budget, the Chancellor announced a key alteration to Business Asset Disposal Relief: an increase in the rate from 2025 onwards. This will directly impact business owners contemplating a tax-efficient exit via an MVL so it is important to understand exactly what has changed.
Currently, qualifying gains are charged Capital Gains Tax at a rate of 10% under BADR rules. However, this rate will increase from April 2025. Asset disposals made on or after the 6th April 2025 will now be taxed at 14% while disposals made on or after the 6th April 2026 will be subject to a rate of 18%. For those contemplating solvent liquidation, acting before these changes come into force could result in substantial tax savings.
Ahead of the Budget, it was also speculated that the government would reduce the lifetime limit on qualifying gains. However, no changes to this have been announced thus far and therefore the lifetime limit for Business Asset Disposal Relief is still £1million.
How Will Changes To BADR Affect The MVL Process?
For solvent businesses considering Members Voluntary Liquidation, the government’s changes to Business Asset Disposal Relief are instantly relevant. The MVL process allows business owners to distribute assets in a tax-efficient manner, often applying the relief to reduce any looming Capital Gains Tax burden. However, with higher BADR rates on the horizon, businesses might see tax benefits diminish if they wait until after April 2025 to begin the MVL process. This means that now is the time to consider whether this form of solvent liquidation is suitable for them.
Business owners wanting to secure a tax-efficient exit and closure of their solvent business should first take steps to understand how the MVL process works and whether their business is eligible for Business Asset Disposal Relief. By speaking to a qualified professional, you can receive tailored guidance and understand the most efficient route forward before tax rates rise in April 2025.
At My Liquidation, our team of licensed practitioners are here to help you navigate the changes announced in the Autumn Budget. We have a wealth of experience guiding business owners through the MVL process with a focus on tax efficiency and tailored support. If you are considering closing your business, get in touch today and ensure you maximise the value you can extract from your business ahead of changes to Business Asset Disposal Relief.
