The October 2024 UK budget marked a significant shift for business owners considering a sale. With Capital Gains Tax (CGT) rates on the rise and key reliefs, like Business Asset Disposal Relief (BADR), further restricted, many entrepreneurs are understandably anxious about how much of their hard-earned exit value will actually land in their pocket.
But while the new rules present challenges, there are still legitimate strategies you can use to manage and mitigate your CGT liability. Here’s a practical guide, rooted in the latest guidance and the principles from The Exit Roadmap by Chris Spratling, on how to navigate the new tax landscape and keep more of what you’ve built.
1. Understand the New Rules
The October 2024 budget increased CGT rates for higher-rate taxpayers and tightened limits on BADR. Key changes include:
– Higher top-end CGT rates—making timing and structuring of exits more crucial than ever.
– Reduced BADR lifetime allowance and higher tax rates on BADR-qualifying gains, making relief less generous.
– Greater HMRC scrutiny on relief claims, valuations, and transaction structures.
Action Step: Review the new rates and thresholds with your tax advisor, and calculate your estimated tax liability based on different sale scenarios.
2. Sell Sooner Rather Than Later?
With additional increases in CGT and BADR tax rates announced for April 2025 and beyond, timing is everything.
– Accelerating your exit to complete before further rate hikes may help reduce your tax bill.
– Balance the benefits of a quicker sale against achieving the right value and exit terms, don’t rush and risk a poor outcome.
3. Maximise Remaining BADR (Entrepreneurs’ Relief) Eligibility
While less generous, BADR can still cut your CGT bill if you qualify.
– Ensure you meet the ownership, employment, and shareholding requirements for at least two years up to the date of sale.
– Plan ahead: transferring shares or restructuring too close to sale can jeopardise eligibility.
4. Consider Employee Ownership Trusts (EOTs)
A sale to an Employee Ownership Trust remains one of the most tax-efficient exit options, with potential for a full CGT exemption if structured correctly.
– EOTs suit owners who want to reward loyal staff, protect the company legacy, and achieve a phased exit.
– Specialist advice is essential. EOTs require strict compliance with HMRC rules.
5. Structure the Deal Tax-Efficiently
Work with your advisors to optimise the deal structure:
– Spread receipts: Deferred payments or earn-outs can help manage tax across tax years, potentially reducing your top-rate exposure.
– Consider share-for-share exchanges: In certain cases, rolling over value into another business or investment may defer immediate CGT liability.
– Use tax-efficient wrappers: Where appropriate, explore the use of pensions, ISAs, or other investment vehicles to shelter proceeds.
6. Make the Most of Allowances and Deductions
– Offset capital losses from other investments where possible.
– Deduct legitimate costs of sale (professional fees, legal costs, etc.) from your gain.
– Ensure all reliefs, allowances, and exemptions are claimed.
7. Plan Your Wealth and Estate Early
Post-sale, your overall wealth and succession plan becomes even more important:
– Consider gifting strategies, trusts, and family investment companies to manage future liabilities.
– Seek joined-up advice from tax, legal, and wealth advisors.
Final Thoughts: Preparation Pays
In the wake of the October 2024 budget, CGT is more complex and costly than ever. But with early planning, expert advice, and smart structuring, you can still exit your business on your terms and maximise your post-tax proceeds.
Your Exit Starts Here
If you’re wondering whether you’re truly ready to sell, don’t leave it to chance. Take the Exit Readiness Survey today at www.chalkhillblue.org/exitreadiness-survey and get a clear picture of where you stand, and what to do next.
Looking for the complete roadmap to a successful exit? Order The Exit Roadmap by Chris Spratling on Amazon – a practical, step-by-step guide for ambitious entrepreneurs ready to maximise value, minimise stress, and exit on their own terms.
For more insights and real-world advice, follow Chris Spratling on LinkedIn. Start your journey to a successful exit with clarity and confidence.
