Legal Expert: Budget Business Asset Disposal Relief changes could bring forward business sales

Legal Expert: Budget Business Asset Disposal Relief changes could bring forward business sales

Business owners considering a sale could bring their plans forward following the Budget's cut to Business Asset Disposal Relief, according to a leading legal expert.

The lifetime limit on the relief is being halved from £1 million to £500,000, meaning an owner with £1 million of qualifying gains could face an extra £30,000 in tax when they sell.

Fraser Cunningham, Partner and Head of Company and Commercial at Smith Partnership, which has offices in Stoke-on-Trent, Burton-upon-Trent, Leicester and Derby said the change could trigger a flurry of deals ahead of April, but warned owners that completing a sale in that timeframe would be difficult, with most transactions taking up to six months.

He said: "Reducing the Business Asset Disposal Relief lifetime limit from £1 million to £500,000 feels like tinkering around the edges from the Treasury's perspective. With the relief rate remaining at 18%, the additional £500,000 could instead attract the headline 24% capital gains tax rate. For someone with £1 million of qualifying gains and their full relief available, that would mean an additional £30,000 in tax.

"The Treasury would need a considerable number of those disposals to generate substantial revenue. However, £30,000 certainly will not feel like tinkering to the individual paying it.

"The significance depends on the transaction. On a £5 million deal, an additional £30,000 is money someone would rather retain, but it is a relatively small proportion of the overall value. It may therefore influence some owners' plans more than others.

"If someone was already considering an exit, this could accelerate that decision. An owner who had intended to start looking at a sale in autumn 2027 might now consider bringing that process forward. We could consequently see a flurry of activity ahead of April.

"My advice would be to speak to the business's accountants and, where appropriate, a personal financial adviser or wealth manager. They can assess the actual tax impact and what retaining that additional £30,000 could mean for the owner's future investment plans.

"Timing is important. Even after a buyer has been found, a transaction typically takes at least three months and more realistically six. Starting now and completing before April could be difficult for a business of any size, particularly if there is no buyer already in place.

"There is also the question of future certainty. Entrepreneurs' Relief, and subsequently Business Asset Disposal Relief, have been eroded over time. Owners may reasonably wonder whether further restrictions could follow, although nobody knows what a future Budget will bring. Whether to accelerate an exit ultimately depends on the business and the owner's appetite to sell."

Founders' Relief is encouraging but founders need confidence it will last

"The proposed Founders' Relief is a positive measure if it encourages people to build businesses and stimulates growth. Giving qualifying founders a 10% capital gains tax rate on an eventual disposal is an encouraging signal, and anything that helps someone turn their passion into a business should be welcomed.

"However, alongside the reduction in Business Asset Disposal Relief, it also feels like a political balancing exercise. Business Asset Disposal Relief started life as Entrepreneurs' Relief, so there is an obvious question about how the new relief differs from what existed previously.

"The distinction between an entrepreneur and a founder is not necessarily straightforward. An entrepreneur might establish a business, invest in one, or do both. The detailed eligibility conditions will therefore be important in understanding who benefits.

"In broad terms, this feels like reducing a benefit for one generation of entrepreneurs who have already built their businesses, while offering an incentive to another generation of founders. Some of those people may even overlap. Budgets are about balancing money coming in against money going out, but there is clearly a political message in that approach.

"For founders themselves, I would see this as something to welcome rather than necessarily a reason to change their plans immediately. People generally start businesses because they have an entrepreneurial spirit and care about what they are creating. They are often committing to the medium to long term, rather than thinking about selling next week.

"That means the relief may only become relevant to them many years later. The question then becomes whether it will still be available when they eventually exit.

"We have already seen Entrepreneurs' Relief become Business Asset Disposal Relief, with the benefit reduced over time. Founders may therefore question whether this new relief could follow a similar path.

"It may not determine whether someone starts a business, but it could provide an additional encouragement. If it helps more people take something they are passionate about and build a business around it, that is a positive outcome."