Business Asset Disposal Relief changes in April 2025: Q&A

Due to an announcement at Autumn Budget 2024 on October 30th 2024, business owners face some important changes regarding the tax rate that is applied in a Members' Voluntary Liquidation (MVL).

There is currently a 10% tax rate through Business Asset Disposal Relief, which is a form of Capital Gains Tax.

However, this 10% rate will increase on April 6th 2025 to 14%, with a further rise to 18% expected in 2026.

Exclusively for ContractorUK, Kirsty Mills, SFP Group’s MVL expert, shares her insights on what these changes mean for limited company contractors and how acting sooner rather than later will save thousands.

Q: What does the current 10% tax rate mean in the context of an MVL and what will change on April 6th 2025?

A: The 10% tax rate in an MVL relates to Business Asset Disposal Relief, which gives business owners a lower Capital Gains Tax rate on the funds they take out when closing a solvent company.

Formerly known as Entrepreneurs’ Relief, ‘BADR’ has been a significant benefit as rather than paying typical income tax rates, the limited company director can pay just 10%.

But under the 2024 Autumn Budget announcement, this rate will increase to 14% in April and again to 18% in 2026.

Q: Why is it important for business owners to act now if they want to take advantage of the current 10% tax rate?

A: The timing of this is so very important!

It might feel like April is still far away, but a lot of work goes into completing an MVL.

Limited company contractors and other business owners need to get their final accounts from their accountant, and they need to settle any outstanding tax liabilities with HMRC.

From what we’re already seeing since chancellor Rachel Reeves announced changes to BADR, accountants will likely feel the pressure soon, with more clients looking to go down this route.

So, it’s best to reach out to your accountant now to request those final accounts and confirm they can have them ready in time.

Realistically, as your MVL provider, we’d need a copy of those accounts by early March 2025 to guarantee a distribution before April.

Q: What are some potential risks if business owners wait too long to start the MVL process?

A: The biggest risk is getting those final accounts too late. Without them, we can’t start the MVL process, and any delay here could mean missing out on the 10% rate.

If business owners wait until they have accounts in hand before reaching out, there might not be enough time left on our end.

Even though we aim to distribute funds within seven days of appointment, things like reconciliation questions could hold up the process. It’s just easier to start sooner and avoid last-minute stress.

Q: Overall, how will the BADR changes affect contractors or small business owners planning to close their companies?

A: Since Reeves announced the BADR changes at chapter 2.49 of Autumn Budget, we’ve obviously been speaking with a lot of contractors and small business owners.

Contractors especially have felt a push, as a fair few were already considering closing their companies due to the recent IR35 changes.

Now, these IR35-fatigued contractors are more motivated to close rather than hold on.

Some of the company directors I've spoken to who planned to retire in a year or two are also bringing those plans forward to benefit from the 10% rate.

Q: How does an MVL help maximise financial returns for business owners compared to other ways of closing a company?

A: Here’s an example to make it clearer.

Suppose Mr Jones has £50,000 in his company. He has two main options -- he can either strike off his company or choose an MVL.

If he strikes off the company, he’d pay a 33.75% dividend tax, which would cost him £16,875 and leave him with about £33,125.

With an MVL, using Business Asset Disposal Relief, he’d only pay 10% tax on the funds. After fees, his HMRC tax bill would be around £5,000, leaving him with £45,000. That’s a hefty difference of £11,875!

The two main benefits of an MVL are:

• Tax Savings: Funds are taxed at only 10% after settling debts. Generally, the more assets in the company, the greater the savings with an MVL.

• Distribution: By signing a shareholder’s indemnity, we can typically release 100% of your net asset value within seven days of appointment (much faster than most).

Q: What kind of HMRC savings can business owners expect if they go through an MVL, before April?

A: If a shareholder has, say, £200,000 in assets, and they go through an MVL before April 6th, they’d pay £20,000 in tax at the 10% rate. After April 6th 2025, with the rate rising to 14%, they’d pay £28,000 – an £8,000 difference.

By anyone’s standards, that’s a great saving, and I’m sure most people would prefer to keep more of their hard-earned money.

That’s one reason why we’re expecting high demand from clients wanting to get things done and dusted with their companies before April.

Plus, here’s a small but significant point -- as a provider we distribute up to 100% of assets in the first payout, whereas some only offer 80-90%.

Q: When should business owners start an MVL if they want to meet the April deadline?

A: Quite honestly, there’s no time like the present.

I’d recommend reaching out to your accountant now to make sure they can produce the final accounts in time. It’s also a good idea to set up an initial call with us to discuss the process and get things moving as soon as possible. Acting early gives everyone the best chance of meeting the deadline.

Q: What support can business owners expect from you if they go through with an MVL?

A: We understand that for many business owners, this is a different process with a lot of steps, so we’re here to guide you through each stage.

I can vouch for everyone at SFP Group insofar as they all individually know how important it is for shareholders to take advantage of the 10% Business Asset Disposal Relief rate, while it’s still in place! That’s why we aim to distribute up to 100% of the net assets within seven days of appointment.

Another part of the process involves directors signing a declaration of solvency in front of a solicitor. We organise this over a Teams call for our clients and don’t charge for this service.

In short, if you’re considering closing your company and want to secure the current 10% tax rate, now is the time to act. With April 6th fast approaching, getting started as soon as possible will help contractors maximise savings and avoid higher tax rates down the line.