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In this blog, Hunter Gee Holroyd discusses how business owners should react to concerns about potential Capital Gains Tax increases ahead of the Autumn Budget.
The Chancellor will deliver the Autumn Budget on 28 October and Capital Gains Tax is already attracting considerable speculation.
Current commentary includes the possibility of bringing CGT closer to Income Tax rates. Capital Economics expects the Budget to lean towards tax increases on “capital, wealth and income”, while political discussion has specifically included possible alignment of CGT and Income Tax. (The Times)
At this stage, nothing firm has been announced so this is just conjecture, but similar situations have arisen several times over the past few years and we always have clients asking if they should make a quick sale.
What could change?
The current CGT rates for business assets stand at 18% (basic rate) and 24% (higher rate), with Business Asset Disposal Relief (“BADR”) offering the reduced rate of 18% on the first £1 million of qualifying lifetime gains.
If rates were aligned with Income Tax, business owners could face rates of up to 40% or even 45% on disposals, a significant increase that would materially affect the net proceeds of any exit.
What options do you have?
There are very few business owners of unlisted businesses who have the ability to find a buyer and complete a sale in a matter of weeks from a standing start.
However, there could be the occasional situation where you have already started conversations about divesting of a minority or majority interest in a business and you do have this option.
If you wish to go ahead with this efficiently, you should bear in the mind the following:
- Be sure that you are selling for the right reasons and not just to potentially save tax
- Only start this process if you already have all the information ready for the buyer, for whatever due diligence they will want to do. There is a very long list of documentation which usually needs to be uploaded to a data room
- Make sure you have capable advisors with time to commit to this urgent process for you such as corporate finance & tax accountants, corporate lawyers, wealth managers etc
Take this as a sign that you need to prepare
Even if a sale or transfer cannot be completed before 28th October 2026, this should focus you on the fact that these deadlines can arise quickly, and you should always be ready to sell your business.
Whether you wish to avoid other impending tax rises in the future, poor health arises or you have another personal reason such as wishing to relocate, the preparatory work you carry out now could prove invaluable if that situation was ever to occur again.
Here are the key steps to consider:
- Obtain a current valuation. Whether you hold shares in a limited company or an interest in a partnership or sole trader, understanding what your interest is worth today is essential. A professional valuation gives you a baseline figure and, critically, establishes the market value at a point when the current CGT regime still applies. This can be relevant if any reliefs or elections depend on values at a specific date.
- Review your shareholders’ or partnership agreement. Some agreements contain pre-emption rights, drag-along or tag-along provisions, or restrictions on transfer that could delay or complicate a disposal. Identifying these now gives you time to negotiate waivers or amendments if needed.
- Check your eligibility for reliefs. BADR requires, among other conditions, that you hold at least 5% of the ordinary share capital and voting rights, and that you are an officer or employee of the company, for at least two years before disposal. If you are close to meeting these qualifying periods, the timing of any disposal becomes particularly important. Investors’ Relief, Holdover Relief and the Enterprise Investment Scheme may also be relevant depending on your circumstances.
- Consider a phased exit. It may be possible to sell part of your interest at one time, to crystallise a gain at the current rates while retaining the remainder of your holding, for a further sale later. This may appeal to certain types of buyer.
- Engage with potential buyers early. If you have been contemplating a sale to a co-owner, a management team, or a third party, opening those conversations now ensures that, should you have to move quickly, you are not starting from scratch.
The lesson to take away
You may not be able to complete a transaction before 28th October this year, but you can ensure you are in the strongest possible position to act quickly. Taking professional advice now will mean you are ready to move, rather than reacting after the event.
If you would like to discuss your own circumstances, please do not hesitate to get in touch.
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If you would like to discuss how we can assist you, please email enquiries@hghyork.co.uk or call us on 01904 655202
