Business owners rush to meet 5 April ‘guillotine’ tax relief deadline
Less than 100 working days (from Friday, 15 November] left for entrepreneurs to cash in before new higher rate on capital extraction kicks in to 14% from current 10%.
Thousands of business owners in the UK are now in a race against time to wind up their companies solvently and extract capital before the chancellor’s tax guillotine falls on 6 April.
That’s the cut-off date in the new year before the tax rate on Business Asset Disposal Relief (BADR) rises from 10% to 14% on the first £1m of qualifying gains.
Announced in the Autumn Budget, the red-ink deadline of 5 April has already resulted in a surge of get-the-ball-rolling enquiries to Azets, the UK top 10 accountancy and advisory firm, as founders look to minimise their tax bills.
“Any business owners who are contemplating winding down and extracting capital are urged to take immediate action,” said Chris Tate, an Azets partner who advises business owners on solvent liquidations.
“Leaving it much longer to kickstart such plans could risk missing out on what can be life-changing amounts of money.”
He added: “Whilst the changes represent a further tax grab, the silver lining is that the lifetime allowance of £1m and existing qualification rules have not been tampered with, providing a further window of opportunity for business owners to maximise their tax savings.
“Many business owners have spent years building their businesses, working hard and taking risks, so they understandably want to keep as much of the fruits of their labour as possible.”
For distributions above the first £1m BADR threshold, the capital gains tax rate of 24% applies.
Chris, who works out of Azets’ South Coast offices, said: “What might not be appreciated by Westminster is that the 5 April deadline could have wider unintended consequences with a wave of well-run companies calling it a day on trading in order for owners, worried by the financial implications of the Autumn Budget, to accelerate retirement plans and exit earlier than planned.
“If you own a business and have worked tirelessly to build it up over the years, generating jobs and employment taxes, you can be forgiven for feeling a tad sore about the impending tax relief reductions.
“By way of basic example, if you qualify for BADR and your business has net assets worth £500,000, you’d receive £450,000, with a tax bill of £50,000 at the current 10% tax relief.
“From 6 April, at 14%, you’d receive £430,000, with a tax bill of £70,000, and from April 2026, at 18%, that is a tax bill of £90,000, leaving £410,000 for you.
“There will be many businesses with assets worth millions of pounds – and these can be life-changing sums of money which could end up needlessly being taxed at the higher rate of 14%.”
Chris added: “As of Friday, 15 November, there are only 100 working days left until 5 April, which is a Saturday – it is going to be tight for many unless they act now as there are many compliance hoops to jump through. They don’t want to be on the wrong side of that date.”
