Why Are Business Asset Disposal Relief and Investors’ Relief Rates Increasing — and What Planning Is Needed?

Updated for 2025/26

The Autumn Budget 2024 confirmed a significant shift in the landscape of Capital Gains Tax relief for entrepreneurs, business owners, and long-term investors. From 6 April 2025, the rate on qualifying gains under Business Asset Disposal Relief (BADR) and Investors’ Relief (IR) will increase from 10% to 14%, rising again to 18% from 6 April 2026.

This change represents a major tightening of reliefs that have long been seen as a vital reward for risk-taking in building businesses or investing in UK growth companies. It also presents a clear message from HMRC: these reliefs are becoming less generous, and the window for tax-efficient disposals is closing fast.

This article explains:

• Why the government is increasing BADR and IR rates
• What types of gains are affected
• How much more tax you could pay under the new regime
• Planning strategies to consider now to minimise the impact

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1. What Are BADR and Investors’ Relief?

Both Business Asset Disposal Relief and Investors’ Relief reduce the Capital Gains Tax payable on the sale of qualifying shares or business assets.

Business Asset Disposal Relief (BADR)

Previously known as Entrepreneurs’ Relief, BADR allows individuals to pay a reduced rate of CGT on gains made when disposing of:

• Shares in their personal trading company
• The whole or part of a sole trade or partnership business
• Business assets following cessation

To qualify, an individual must have:

• Held at least 5% of shares and voting rights in a trading company
• Been a director or employee
• Owned the shares for at least 2 years

The lifetime gains limit is £1 million — anything above this is taxed at standard CGT rates (currently 24% for higher/additional rate taxpayers).

Investors’ Relief (IR)

Introduced in 2016, IR applies to external investors (i.e., not employees or officers) who subscribe to new ordinary shares in an unlisted UK trading company.

To qualify:

• Shares must be newly issued and held for at least 3 years
• The investor must have no working relationship with the company
• The company must be a trading business (not investment)

The lifetime limit for IR is also £1 million, but unlike BADR, the qualifying investor does not need to be involved in the business.

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2. What’s Changing from April 2025 and April 2026?

While the lifetime limit remains at £1 million, the rate increase sharply reduces the benefit. In practice:

• Disposing of £1 million in qualifying gains before April 2025 could save £140,000 in tax.
• The same disposal after April 2026 would only save £60,000.

That’s a £80,000 difference purely based on timing.

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3. Why Are the Rates Being Increased?

There are three likely drivers behind the changes:

a) Revenue Generation

The Treasury estimates the changes will raise over £1.6 billion over the next five years. With significant fiscal pressures, adjusting CGT reliefs for a small group of higher-net-worth taxpayers is politically easier than raising income or corporation tax.

b) Policy Repositioning

Since the renaming of Entrepreneurs’ Relief to BADR in 2020, HMRC has repeatedly questioned whether these reliefs offer sufficient economic benefit to justify their cost. By reducing the reward, the government hopes to:

• Retain some incentive for entrepreneurship
• Curb excessive use or abuse
• Align reliefs more closely with broader CGT rates

c) Curbing Abuse and Arbitrage

The Autumn Budget includes anti-forestalling rules to stop taxpayers from manipulating disposal dates or creating artificial structures to lock in the 10% rate before it ends. These measures signal that HMRC is closely monitoring attempts to circumvent the new regime.

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4. What Planning Should Business Owners Consider Now?

Timing is everything. For those with existing businesses or investments, now is the time to act. Below are strategies you should be considering immediately.

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a) Complete Sales Before April 2025 Where Possible

If you’re already planning to:

• Retire and sell your business
• Sell your shares to a third party or management team
• Exit an investment in a qualifying company

Then completing the transaction before 5 April 2025 secures the 10% rate. That could mean saving tens of thousands of pounds in tax.

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b) Review Share Structures and Ownership

Ask yourself:

• Do you hold enough shares (minimum 5%)?
• Have you been a director or employee for long enough?
• Are the conditions satisfied across the full 2-year holding period?

If not, consider delaying the sale to meet the full qualification criteria.

For example, if you received shares on 1 June 2023, you would only become eligible for BADR on 1 June 2025 — too late for the 10% rate but in time for 14%.

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c) Look at Deferred Gains and Loan Notes

Some business owners previously deferred gains through mechanisms like:

• Share-for-share exchanges
• Roll-over reliefs
• Corporate reorganisations

These gains may now crystallise at higher rates. Consider triggering them early to lock in the 10% or 14% rates.

However, this must be weighed against cashflow, commercial goals, and potential Income Tax implications.

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d) Use Hold-Over or Gift Relief Cautiously

Where you plan to gift business assets to family or trusts, hold-over relief may be available — deferring the gain until a later disposal.

But beware: deferring gains now may expose future disposals to the 14% or 18% rate, instead of today’s 10%. If the transferee also won’t qualify for BADR, the gain could face full 24% CGT.

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e) Review Trust Planning

Business assets placed in relevant property trusts may qualify for BADR on exit if the trust structure allows.

Some recent case law indicates that trustees may not be required to meet the 2-year condition themselves, if the beneficiary qualifies — though the rules are complex.

Seek specialist trust and tax advice before pursuing this.

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5. What About Investors’ Relief?

While less commonly claimed than BADR, Investors’ Relief is also affected:

• New qualifying shares must still be held for at least 3 years
• But there’s no employment requirement
• Many angel investors and SEIS/EIS investors benefit from IR

If you have qualifying shares due to mature in 2025 or 2026, consider your disposal window carefully. Delaying by even a few weeks could mean paying up to 8% more in tax.

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6. Final Thoughts: Act Early, Plan Strategically

The CGT changes to BADR and IR are not retrospective — but they are imminent. From April 2025, you’ll lose a significant part of the tax saving these reliefs currently offer.

While some tax benefits remain, the window to fully utilise the 10% rate is closing rapidly.

Key Actions:

• Review your business or investment portfolio immediately
• Identify potential disposals, reorganisations, or successions
• Clarify your BADR/IR eligibility with your accountant
• Plan transaction dates carefully
• Avoid anti-forestalling risks by keeping everything transparent and commercial

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How Merranti Accounting Can Help

At Merranti Accounting, we specialise in advising owner-managed businesses and investors on the optimal time and structure for exits.

We can:

• Review your BADR and IR eligibility
• Estimate potential CGT savings at different rates
• Structure sales, gifts, or reorganisations tax-efficiently
• Coordinate with solicitors and corporate finance teams

Time is short. Contact our tax team now to explore your best options before the 2025 and 2026 rate hikes take effect.