Important Tax Changes Affecting Business Exits in 2025
The landscape for business owners looking to close their solvent companies is about to shift significantly. Following the Autumn Budget announcement by Rachel Reeves in October 2024, substantial tax increases are on the horizon that could impact your exit strategy. If you’re considering closing your business, here’s what you need to know about the upcoming changes and why timing is crucial.
Understanding the New Tax Landscape
Capital Gains Tax (CGT) Changes
The government has already implemented changes to the Capital Gains Tax rates:
- Basic rate taxpayers now face an increased rate of 18% (up from 10%)
- Higher rate taxpayers will pay 24% (up from 20%)
Business Asset Disposal Relief (BADR) Updates
BADR (formerly known as Entrepreneurs’ Relief) is seeing phased increases:
- Current rate remains at 10% until April 5, 2025
- Increases to 14% from April 6, 2025
- Further rises to 18% from April 6, 2026
- The lifetime allowance stays at £1 million
Why Timing Matters: A Financial Perspective
To understand the financial impact, consider this example: A shareholder receiving a £2 million distribution from their company through a Members’ Voluntary Liquidation (MVL) would pay:
- £340,000 in tax before April 5, 2025
- £380,000 in tax before April 5, 2026
- £420,000 in tax after April 5, 2026
This represents a potential additional tax burden of up to £80,000 depending on timing.
The MVL Option: A Strategic Exit Route
A Members’ Voluntary Liquidation offers a structured and tax-efficient way to close a solvent company. Unlike insolvent liquidations, an MVL ensures:
- All creditors are paid in full
- Remaining assets are distributed to shareholders in a tax-efficient manner
- The process is orderly and professionally managed
However, completing an MVL requires careful planning and can take several weeks or even months. The process involves multiple steps that need to be executed properly to ensure compliance and maximise tax efficiency.
Next Steps: Act Now to Minimise Tax Impact
With less than 100 days until the first BADR rate increase takes effect, business owners should:
- Evaluate their qualification for BADR
- Seek professional advice to confirm eligibility
- Begin exit planning immediately if closing the business is being considered
- Consider liquidating their company and distributing surplus capital before April 5, 2025
The clock is ticking for business owners who want to optimise their tax position. While tax shouldn’t be the only factor in deciding when to close a business, the significant increases ahead make it an important consideration in your timing.
Looking for guidance on your business exit strategy? Contact our team to discuss your options and ensure you’re making the most tax-efficient decisions for your business’s future.