Acting sooner rather than later could be a good idea to avoid unforeseen changes to CGT and BADR in the next 12 months

Continuing our December series on Members’ Voluntary Liquidations (MVLs) – we’re going to take a closer look at one of the main reasons why directors seek to close their company through the insolvency process of an MVL. 

That is being able to take advantage of Capital Gains Tax (CGT) when it comes to distributing the proceeds of assets from the business through a mechanism known as Business Asset Disposal Relief (BADR). 

We’ll begin by looking at our calendar and seeing what the coming year could have in store for business owners and directors looking to shut their business.

Changes to CGT and BADR in 2025?

Following the October Budget Statement, we provided a summary of the immediate and future changes that would take effect. It’s a good chance to now look ahead to see what is coming in Q1 next year:

  • Increase in BADR rate: Currently set at 10%, the successor to Entrepreneurs’ Relief will rise to 14% on April 6th 2025. BADR is also scheduled to rise by 4% again to 18% in April 2026. Any business owner selling any qualifying assets after this date will face a slightly higher tax liability on their gains – although if they act quickly, they will be subject to the existing 10% level.
  • Potential increase in CGT rate? Capital Gains Tax was raised by Chancellor Rachel Reeves in October to 24% from 20% with the lower rate increasing to 18% from 10%. She combined this with closing NHT loopholes along with bringing inherited pensions into IHT from 2027 along with a pledge to reform agricultural property relief. Additionally the “non-dom” tax regime will be replaced next year with a new residence-based scheme “with intentionally competitive arrangements for those coming to the UK on a temporary basis.” While there is no immediate basis to suspect these rates could change again in 2025, there is a logical case to be made about equalising CGT and income tax rates, as several other similar sized economies do, which would mean an increase if this came to pass.  

This is based on the current “known knowns” that will or are suspected to happen in 2025. There may be any number of factors or events that could occur that could see changes come more quickly which could see the following tactics considered:

  • Government revenue needs: Being caught in an international trade war or sudden economic downturn caused by one could see a government have to react quickly to raise revenue and meet the challenge. In such a scenario, increasing CGT while reducing or even eliminating BADR outright would be attractive alternatives to raising direct taxation in order to generate additional revenue.
  • Public perceptions: Even if no emergency appears, the public will be far more accepting of CGT and BADR changes if they are seen as an alternative to their personal income tax rates changing. This could make it politically easier for any government to implement changes but these would have to be balanced with any perceived attacks or impediments on entrepreneurship which the government has already said it wants to encourage as a driver for growth in the economy.

If you’re a director considering how you could make use of CGT and BADR, the first and most important step you should take is discussing your ideas with your accountants. 

They will have a better idea of the potential savings and advantages that can be obtained whether through an MVL or other process. 

They will also be able to remind you that CGT applies to a variety of assets.

Capital Gains Taxes aren’t just limited to one area. They encompass a wide range of assets including property, shares and personal possessions. 

For example Principal Private Residence (PPR) Relief which can exempt gains made on the sales of a main house while BADR will lower the CGT rate for a business owner selling certain assets.

Something accountants and ourselves agree on is that a Members’ Voluntary Liquidation (MVL) is a compelling option to consider if you wish to close a solvent business and take advantage of the tax efficiency and relatively fast access to funds offered through the formal insolvency process.

So if you’d like to take advantage of the current attractive conditions to liquidate then get in touch for a free initial conversation to answer any questions you might have and give you a clearer idea of requirements and timescales. 

If you act quickly then there could still be time to close your business before the Christmas holidays and look forward to starting 2025 with a spring in your step!