The tax landscape is constantly shifting, and recent changes to Capital Gains Tax (CGT) have been a major point of discussion for business owners and investors. These reforms, particularly to key reliefs, have a direct impact on the profit you can retain when selling a business or an asset. So, are these changes a good or bad development for the business community?
Several significant changes have been implemented to CGT. One of the most impactful is the reform of Business Asset Disposal Relief (BADR), formerly known as Entrepreneurs’ Relief. This relief allowed entrepreneurs to pay a reduced CGT rate on the sale of a qualifying business. The rate for BADR increased from its long-standing 10% to 14% on April 6, 2025, and then it is rising again to 18% from April 6, 2026.
In addition to BADR, the main rates of CGT for assets like shares have also been adjusted. For disposals made on or after October 30, 2024, the lower rate increased from 10% to 18%, and the higher rate rose from 20% to 24%. Furthermore, the lifetime limit for Investors’ Relief has been reduced from £10 million to £1 million, and the separate tax regime for Furnished Holiday Lettings (FHLs) is being abolished, removing certain tax advantages for landlords with these types of properties.
The Impact: Good or Bad?
The effects of these changes are a mixed bag, depending on your perspective and individual circumstances.
The “Bad” for Businesses
The most immediate and obvious negative is the increase in the tax burden on business sales. A higher BADR rate means that an entrepreneur selling their company will now have to pay significantly more in tax on their profits. This could be seen as a disincentive for entrepreneurial activity, potentially making the risk and hard work of building a business less financially rewarding upon exit. The reduction in the Investors’ Relief limit similarly reduces the tax benefits for those investing in small, unlisted companies, which could dampen investment in new ventures. The abolition of the FHL tax regime also removes a valuable tax break for a specific group of property business owners.
The “Good” for the Economy
From a government perspective, these changes are part of a broader strategy to raise revenue and create a simpler, more equitable tax system. The increased tax take from these measures is intended to help fund public services. While a higher tax rate on a business sale is a tough pill for an individual entrepreneur to swallow, the revenue generated can be viewed as a contribution to the wider economy. The changes also aim to level the playing field, ensuring that different types of businesses and investors are subject to more consistent tax rules. The reform of FHLs, for instance, is aimed at reducing the tax advantages they held over other property businesses, with a potential secondary effect of encouraging more properties to be made available for long-term rentals.
Conclusion
Ultimately, the changes to Capital Gains Tax present a challenge for business owners and investors. While they increase the tax on business disposals and reduce the generosity of certain reliefs, they are part of a government effort to modernise and reform the tax system. Business owners should be aware of these changes and plan accordingly, as they will have a notable impact on financial planning and succession strategies.
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