Following the changes to Business Property Relief (BPR) announced in previous Budgets, owners of family businesses and other business owners may well have been waiting with some apprehension to see what this year's Budget would bring. There is some good news. Capital Gains Tax rates remain unchanged and no further changes to BPR were announced.
However, changes to Business Asset Disposal Relief (BADR), together with proposed reforms to the taxation of company distributions, mean that business owners who are already considering a disposal or passing their business to the next generation may want to review their plans sooner rather than later.
More broadly, there was a clear focus in the Budget on encouraging entrepreneurs to grow successful businesses and supporting those businesses to remain in the UK.
Founders’ relief
From 6 April 2027, a new Founders' Relief will provide qualifying founders with a reduced 10% Capital Gains Tax rate on up to £10 million of lifetime gains.
The detailed qualifying requirements are yet to be finalised, but it seems that the relief is intended to support founders of successful and innovative companies.
Female entrepreneurs
The Budget also included measures aimed specifically at supporting female entrepreneurs and women-led businesses. The Government has announced support aimed at helping women-led businesses including access to investor networks and guidance on finance and governance.
These positive measures do, however, need to be considered alongside some less favourable changes for business owners.
Changes to BADR
From 6 April 2027, the lifetime limit on gains that can benefit from BADR will reduce from £1 million to £500,000.
For business owners already considering a disposal, this is likely to be one of the most significant Budget changes. Someone who has their full BADR lifetime allowance available and makes a qualifying disposal shortly after 6 April 2027 could have £500,000 less of their gain eligible for BADR than if the same qualifying disposal had completed before the reduction took effect.
This is certainly not a reason to rush a disposal. Selling a business is a significant commercial and personal decision. It does, however, mean that business owners already considering an exit should start those conversations with their legal and financial advisers sooner rather than later. This will allow the potential impact of the BADR change to be properly factored into the timing of the transaction.
Could more be coming?
The Budget confirms that the Government intends to modernise the taxation of company distributions from April 2028, with draft legislation expected in 2027. We await the release of detailed rules to enable us to understand the wider implications for family-owned companies. The Government has indicated that the reforms are not intended to adversely affect family business succession arrangements which is a welcome reassurance for business owners.
What should business owners be doing now?
The Budget, together with the introduction in April of the changes to BPR, provides a useful prompt for business owners to review their plans, particularly where they are already considering;
Selling all or part of their business
Passing the business to the next generation
Restructuring the company's share capital
Establishing a family investment company
Business succession should also be considered alongside the owner's wider personal arrangements, including inheritance tax and estate planning, so that their business and personal succession plans work together as tax-efficiently as possible.
If you are considering selling your business or reviewing your wider succession arrangements, our private client and corporate teams can work together to help you consider the options and identify an approach that works for you and your business, while supporting the future of the business for the next generation.
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