Following the usual speculation since the end of the summer holidays, this Budget Statement has yet again been subject to much rumour. Of particular concern to business owners were early rumours that CGT rates could be aligned with Income Tax and dividend rates could be further increased.
Our team of business lawyers will digest and review these proposed changes over the coming days but we have summarised briefly below some of the key changes on items which we know will have been on the minds of business owners and their employees.
Business Asset Disposal Relief
There was mixed news for business owners with a business sale on the horizon.
Whilst the rate of Capital Gains Tax itself is not changing, the Chancellor announced that the lifetime allowance for those owners claiming Business Asset Disposal Relief (paying a reduced rate of 18% instead of 24%) will be reduced from £1,000,000 to £500,000. This most recent change to CGT payable by those selling their business follows the gradual decline of attractive rates since 2020, when the effective rate was 10% and each individual had a lifetime allowance of £10m.
These changes will take effect on qualifying sales from 06 April 2027 so those with sales on the immediate horizon still have 5 months in order to complete their transactions.
New ‘Founders Relief’
Whilst BADR changes may impact current business owners, the Chancellor has tabled the introduction of a new ‘Founders Relief’. This relief will give ‘founders’ and ‘early investors’ a 10% rate on lifetime gains up to £10m.
There is now a technical consultation being undertaken and it will be interesting to see exactly what criteria will be applied for any entrepreneurs and business owners to be able to claim this relief.
Minimum Wage
National Living Wage and National Minimum Wage rates are increasing again in April 2027. For those aged 21 or over, to £13.20 and for those aged between 18 to 20, to £11.27.
This presents a 3.9% increase to both rates, going against recent rises for each band over the last few years which were not proportional and which were starting to reflect a desire in some political camps to have one minimum wage rate.
Income Tax and Dividend Tax
The Chancellor announced that the tax bands for income tax on income from employment and pensions, and the corresponding income tax rates, will not change from 06 April 2027 (except for savings and property income).
The tax free dividend allowance will not increase in April 2027 and will remain at £500 and the dividend rates will remain the same as this year’s.
Employee share incentives
From April 2026 the Enterprise Management Incentives and Company Share Option Plan rules were expanded to offer more qualifying businesses the opportunity to provide tax-efficient share option schemes for their employees.
The Chancellor referenced an ‘EMI2’ in this Budget Statement, further details will follow but new changes to employee share incentive schemes will include the individual option limit under CSOP’s being increased to £120,000 and the exercise period under CSOP’s being extended to 15 years.
Now that the Budget has happened, whilst not providing business owners with a crystal ball we at least have a better idea of the landscape we’re working in between now and April 2027 and the changes that will take effect from then.
In anticipation of potential changes which could have taken effect from the date of today’s Budget Statement, our corporate team saw an up turn in business owners wanting to accelerate the sale of their businesses, with 24 transactions successfully completed since the end of the summer holidays.
To speak to a member of our corporate team about your exit plans contact us on 01242 250039 or at reception@sherborneslaw.co.uk