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We all sat with bated breath. It was budget day and the journalists hands hovered over keyboards, experts stood ready, and many a live podcast was set to roll. Then, in the event, for the average SME or microbusiness, there wasn't a great deal to get excited about.
There were some incentives for particular sectors, and they are all very welcome. However, for many smaller businesses, there was very little in the way of breathing space from the financial pressures they are already experiencing. While things weren’t made significantly worse, there wasn’t much to make them better. It was a little bit of a beige budget in many ways.
There were, however, a couple of announcements that do merit some attention.
As always, please remember that this article is talking in general terms, and you should always take advice about your individual circumstances.
One area of the Budget that particularly caught our attention was the announcement concerning Business Asset Disposal Relief (BADR).
For perspective, to many business owners, their company represents far more than their working life. They often spend 20 or 30 years developing it, investing their profits back into the business and building up its value. They may be relying on the eventual sale or closure of the business to supplement a pension and fund their retirement.
That's why changes to Business Asset Disposal Relief can have such a significant personal impact.
Put simply, BADR allows qualifying business owners to pay a reduced rate of Capital Gains Tax (CGT) when they dispose of their business or qualifying shares.
This can apply when selling a company or when closing a solvent company and distributing its assets through a Members' Voluntary Liquidation (MVL).
Historically, the relief was considerably more generous but recently, the tax rate has increased:
From 10% to 14% in April 2025.
From 14% to 18% in April 2026.
The 2026 Budget hasn't increased the rate again, which is at least some good news.
However, it has announced another reduction in the lifetime allowance.
For owners whose qualifying gains exceed £500,000, this could make a substantial difference to the amount they receive when they retire.
Well, in all honesty, yes, it could.
Let’s take an admittedly overly straightforward example for illustration purposes.
Imagine you have £1 million in qualifying capital gains from closing a solvent company. Assuming you satisfy the BADR conditions, the difference could look like this:
That's an additional £30,000 in Capital Gains Tax, simply because of the change in the lifetime allowance.
Obviously, this is a very generalised illustration, but it demonstrates why the changes could really matter. £30,000 is hardly an insignificant sum.
An MVL can be an effective and tax-efficient way to bring a company's affairs to a close. However, it isn't necessarily something that can be organised at the last minute. There are formal procedures to follow, financial information to prepare and decisions that need to be made.
Depending on the circumstances, the process can take several months, particularly where there are outstanding assets, liabilities or other matters to resolve. That means the timing and tax treatment of distributions need to be considered carefully.
It seems sensible then that if you're already thinking about retiring or closing your solvent company, now is the time to start planning.
That means understanding your options and making an informed decision.
The Government announced plans for a new Founders' Relief, offering a Capital Gains Tax rate of just 10% on up to £10 million of qualifying lifetime gains. At first glance, that sounds remarkably similar to the old Business Asset Disposal Relief (we used to call it the Entrepreneurs Relief). For the many directors who built their companies from scratch, that could have been welcome news.
Unfortunately, the details tell rather a different story.
The Government intends to introduce Founders' Relief from 6 April 2027, but the final rules have yet to be settled. So, it's important to recognise that the precise conditions are still subject to consultation.
However, the proposed qualifying requirements are pretty strict!
One example of this is that an individual would generally need to have held at least 25% of the company's ordinary share capital when its original trading activity began, and also to have held their investment for at least five tax years before disposal. Another is that the company would also need to have achieved at least £10 million in annual turnover and employed at least 15 qualifying full-time equivalent employees in the relevant period before the disposal.
And that's before considering the additional requirements and small print.
As it stands, a qualifying company would also need to meet at least two of three further tests.
These relate to:
There are other eligibility requirements in play as well, but these give a reasonable indication of the scale and type of business the Government has in mind.
You can read the full proposals in the Government's Founders' Relief consultation.
Ok, look, we understand why the Government might want to encourage founders to develop high-growth, innovative businesses. However, it does raise an interesting question about the businesses that don't fit that description.
What about the owner of a successful local engineering company employing ten people? What about someone who has spent 25 years building a profitable family business, without ever wanting, needing, or even having the available market, to expand turnover at 25% a year?
These are businesses that employ people, support their local economies, pay taxes and provide valuable goods and services. Yet many are unlikely to come anywhere close to meeting the proposed Founders' Relief conditions.
Indeed, most of the accountants we've spoken to about this have already indicated that they struggle to identify clients who would currently meet all the proposed criteria. That doesn't mean nobody will benefit, but the relief does seem to be deliberately aimed at a relatively small group of high-growth companies. For most conventional SMEs, the proposed Founders' Relief seems unlikely to compensate for the continuing reductions in Business Asset Disposal Relief.
Directors obviously face different challenges at different stages of a company's life. What this means to them will depend on where they currently are and their individual circumstances.
The budget has sadly provided relatively little for the first group, but it has introduced an important new consideration for the second.
If you are planning to retire, sell your company or close a solvent business, there are several questions worth considering.
The important thing right now is to understand your choices. MVLs take time to process, and time may not be an asset you have a lot of under the new rules.
We regularly advise directors on Members' Voluntary Liquidations and the practical considerations involved in closing a solvent company, so if any of this resonates with you, call us. We're always happy to have an initial conversation about your circumstances, explain the process and help you understand the options available.