Whilst the Chancellor had already confirmed that there would be no changes to the rates of Capital Gains Tax, it was announced that the lifetime limit for Business Asset Disposal Relief (BADR) would be reduced from £1,000,000 to £500,000 for disposals from 6 April 2027.
BADR applies to gains realised on certain qualifying business disposals, reducing the rate charged on those gains to 18% (as opposed to the 24% rate which would otherwise apply).
This change potentially increases the CGT due on a business disposal by £30,000.
The Chancellor also announced a new “Founders’ Relief” which will offer a 10% CGT rate on qualifying gains of up to £10,000,000. Subject to consultation this will apply to qualifying disposals from 6 April 2027, and it is targeted at larger trading companies, with turnover above £10,000,000 and at least 15 full-time employees. There will also be requirements as to the rate of the company’s growth, and its minimum spend on research and development (R&D). There will also be a requirement for the individual making the disposal to have held at least 25% of the share capital at the time the company’s trade commenced, and for the shares that are sold to have been held for at least 5 years leading up to the disposal.
The Government had previously consulted on potential changes to the rules which apply where a limited company buys shares back from a shareholder - subject to meeting certain criteria, this can be subject to CGT in the hands of the outgoing shareholder (rather than income tax). The Government will move ahead with legislation which will narrow the application of the CGT treatment, particularly where the outgoing shareholder has family relations with the remaining shareholders/directors.
There will also be further technical consultation in respect of a reform of the current ‘transactions in securities’ legislation (which, broadly speaking, seeks to impose an income tax charge where value is derived from limited company shares as part of arrangements which have a main objective of avoiding a charge to income tax). Further detail will be announced in due course, but it is thought that this may target situations where family businesses are passed down to the next generation under arrangements which allow the outgoing shareholders to access company funds at CGT rates.
The Chancellor did specifically confirm that business owners would continue to be able to gift their family business to the next generation. This was essentially confirmation that CGT holdover relief will remain available (allowing for inherent capital gains within business assets to be deferred).
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