Post-Budget tips to minimise capital gains tax (CGT) on sale of your business and inheritance tax (IHT) on its value
In addition to the general increase in CGT, the flat rate, applicable to disposals qualifying for business asset disposal relief (BADR) will also increase from 10% to 14% in April 2025 and again to 18% in April 2026. The qualifying criteria and lifetime limit (£1m) remain the same. Business owners planning to sell company shares or liquidate assets should be particularly cautious, as these changes are likely to directly affect their net proceeds.
Make sure you’ve maximised your capital losses to offset against future gains
For those who have incurred capital losses but have not declared them, now is the time to review your position. That’s because capital losses can be carried forward indefinitely and offset against current or future gains, helping to reduce your CGT liability. This is something that is often overlooked. You can make a claim for capital losses up to four years after the end of the tax year in which you sold the loss-making asset.
Use pension contributions in the year you sell to increase your basic rate band
The rate of CGT applicable to your disposal is not only dependent on what you are selling, but also on which income tax band you will fall into. By making personal pension contributions, individuals can extend their basic rate tax band which could reduce the proportion of income subject to higher CGT rates.
Share the gain with your spouse
Shares in your business can be transferred to your spouse (or civil partner) on a tax-neutral basis, so if your spouse has a much lower income, it may be worth considering transferring shares to them before it is sold to benefit from a lower CGT rate. Bear in mind that your spouse is also entitled to a £1m lifetime BADR limit, so if you sell your business for £2m (for example), with you and your spouse each owning 50% of the shares, you’ll each be entitled to your £1m BADR meaning that the entire capital gain will qualify for (currently) 10% CGT – 14% from April 2025 and then 18% from April 2026. If all of the shares had been held by you alone, you’d have got the first £1m at 10%/14%/18% and the second £1m would have been taxed at 24%. So, quite a saving.
Re-invest to defer the CGT
Another opportunity to mitigate any immediate CGT charge is to reinvest the proceeds of the sale of your business into qualifying enterprise investment scheme (EIS) or seed enterprise investment scheme (SEIS) shares, as these options offer both CGT deferral and income tax benefits.
Claim rollover relief for the sale of properties used in your business
If you sell an asset such as land, building or machinery that has been used in your business, and use those proceeds to reinvest in a new business asset, you may qualify for business asset rollover relief. This relief defers any CGT charge until a future event such as the sale of the new asset. This would apply if, for example (and it’s quite common), you personally own the property that your business trades from. So, when you sell the shares in your company, the buyer may well want to buy the property (from you, personally), too. That’s when a rollover relief claim might come in useful.
Don’t miss the deadlines
If you are considering selling a business in the near future and you expect to qualify for BADR, it will be critical to complete your transaction by 6th April 2025 to access current CGT rates (i.e. 10% on the first £1m rather than 14% from April 2025 and then 18% from April 2026). Exchanging contracts on the sale of your business won’t be sufficient to ‘lock in’ the existing rates – you’d need to ensure that the deal is completed by the relevant date (5th April 2025 or 5th April 2026 to avoid the 14% or 18% rates respectively).
Offset all costs associated with acquisition and disposal
When disposing of an asset, you’re allowed to deduct all eligible acquisition and disposal costs such as legal, accounting and transaction fees, to reduce the taxable gain as far as possible.
Consider transferring shares in your business to your beneficiaries to avoid IHT
Due to the IHT reforms which will be effective from April 2026, you might want to consider transferring assets to your family much earlier than you had originally planned. This may be very sensible from an IHT perspective but many asset transfers to a connected party, such as a family member, can attract an immediate CGT charge.
For certain assets, such as shares in a trading company, gift relief may be available to defer some or all of the CGT liability that could arise on the transfer. So, if you transferred your shares to your children, for example, and your business is worth say £1m, you’d have CGT to pay on the £1m (despite the fact that the kids haven’t actually paid you anything). By making a claim to HMRC for gift relief, this ‘gain’ can be passed on to the children, so they effectively pay that CGT on your behalf when they ultimately sell the shares on to a third party in the future.
Conclusion
Although the changes aren’t great news for business owners, there are several opportunities to alleviate the pressure of the CGT increases. Each planning opportunity will differ on a case-by-case basis and I would advise you to speak to us well in advance of any planned sale.
