Business Asset Disposal Relief and CGT in the March 21 Budget

Business Asset Disposal Relief (Formerly Entrepreneurs Tax Relief) and CGT in the March 21 Budget

It had been almost universally anticipated that Rishi Sunak was going to announce a change to Business Asset Disposal Relief (BADR) in his latest budget.

However, a freeze in capital gains tax was announced amongst a host of measures.

Changes to BADR / entrepreneurs’ tax relief

Most commentators anticipated that he would abolish BADR altogether or significantly reduce the relief.

This has led to a surge of business sales and exits in recent months, as business owners have looked to sell their shares or assets while tax on their gains are significantly lower.

We have been acting for a number of business owners who have been working towards this deadline. Either with sales of shares in their business, or asset sales with solvent liquidations of their comapnies (MVLs) to follow.

We have also seen a significant rise in MVL-related work, as business owners look to wind up businesses and realise their assets before the anticipated tax hike.

Malcolm Niekirk, Frettens’ resident insolvency guru has seen his team involved with over 70 MVLs in the past month, an indication of just how much concern there is about potential adverse effect.

You can read about Frettens’ process for MVL declarations of solvency here.

What does this mean for business owners looking to sell?

Matt Fretten, Head of Frettens’ Corporate & Commercial team on the entrepreneurs’ relief announcement.

“This looks to be a stay of execution rather than a change in policy – though we can’t be certain. The chancellor’s budget announcement contained many measures to support individuals and businesses as the economy recovers from the pandemic.

The abolition of BADR has seemingly been on the radar of the treasury for some time, and it seems that it is a case of when, rather than if, it is announced.

With no anticipated announcement today, it seems very likely one will come in the autumn.

This leaves any business owner looking to exit and take advantage of the tax relief, should seriously consider doing so before autumn.”

What is Business Asset Disposal Relief (BADR)?

BADR is a tax break that means business owners pay less capital gains tax on a disposal of assets (including shares in a qualifying company), up to a current lifetime allowance of £1m. 

How much is entrepreneurs’ tax relief on capital gains tax?

The chancellor announced a change in the March 2020 budget, that meant business sellers now pay 10% on lifetime gains of up to £1m, compared with the previous upper limit of £10m. Above £1m, business owners will be charged standard capital gains tax rates, which is 20% for higher-rate taxpayers.

The anticipated abolition of BADR would have meant that these business owners would have paid the higher rate of capital gains tax.

What does this mean for MVLs?

Malcolm Niekirk, Frettens’ resident insolvency guru, on the announcement (or lack thereof):

“I would agree with Matt that this seems to be a case of kicking the can down the road, rather than throwing it in the bin.

Anyone looking to realise their assets, whether through a share sale or asset sale followed by an MVL, might want to think about getting it done before the autumn budget in six months.

Any business owner looking to take the asset sale route should take into consideration that the MVL process that follows will take a little longer and should make allowances to beat any anticipated deadline.

My team are used to working very closely with insolvency practitioners liquidating companies, and can help with distributions in specie and s110 reconstructions."

Legal advice for business sales and exits

If you are a business owner considering a sale or exit, Karen Edwards has written a series of articles on business sales, the links for which you can find below:

• Guide to selling a business
• Grooming a business for sale
• Choosing the right buyer for your business
• Selling Shares back to a company
• How does the management buyout process work?