Will Business Asset Disposal Relief Be Scrapped

Business Asset Disposal Relief, previously known as Entrepreneurs’ Relief, offers a significant tax break for business owners who sell or wind down their company. It allows qualifying individuals to pay just 10 percent Capital Gains Tax on the sale of all or part of a business, up to a lifetime limit of £1 million.

While it has been an important incentive for entrepreneurs in the UK, questions continue to be raised about whether this relief will be scrapped, restricted or reformed in future fiscal events. This article looks at the history of the relief, recent changes, political attitudes and the likelihood of it being withdrawn or altered.

A quick overview of the relief

Business Asset Disposal Relief allows sole traders, partners and shareholders who meet qualifying conditions to pay a reduced rate of Capital Gains Tax when selling all or part of their business. The standard Capital Gains Tax rate for higher-rate taxpayers on business assets is 20 percent. With this relief, qualifying gains up to £1 million are taxed at just 10 percent.

To qualify, the individual must have owned the business for at least two years and be actively involved as an employee or director in the case of limited companies.

Why is there talk of scrapping the relief?

There has been speculation about scrapping Business Asset Disposal Relief for a number of years, largely because of the cost to the Treasury and concerns over fairness. The relief, particularly under its previous form as Entrepreneurs’ Relief with a £10 million lifetime limit, was criticised for disproportionately benefiting wealthy individuals while offering limited value to the average business owner.

In 2020, the government responded to this criticism by reducing the lifetime allowance from £10 million to £1 million. This significantly cut the potential tax savings for high-gain disposals and redirected the relief toward smaller business owners. However, even with this reduction, the relief still represents a considerable tax incentive.

Policy think tanks such as the Institute for Fiscal Studies have previously suggested the relief could be scrapped altogether, arguing that it does not meaningfully encourage entrepreneurship and creates distortions in tax planning.

What has the government said?

Since the 2020 reforms, the government has kept Business Asset Disposal Relief largely unchanged. Budgets and fiscal statements under both Conservative and Labour leadership have occasionally hinted at further reviews of Capital Gains Tax, but no formal plans to abolish the relief have been announced.

That said, the Treasury has included it in past consultations when reviewing the broader Capital Gains Tax system. While not directly targeted for scrapping, the relief could be revised as part of a future reform package, especially if the government seeks to raise revenue without increasing headline tax rates.

What could happen next?

There are several potential outcomes:

1. The relief is kept in its current form: This is possible if the government decides that the 2020 reforms sufficiently balanced fairness and support for small business owners.

2. Further restrictions are introduced: The government could reduce the £1 million lifetime limit further, tighten eligibility criteria, or impose additional conditions.

3. It is replaced by a new form of relief: A future government could rebrand or restructure the relief to better align with its economic goals, possibly creating a more targeted version for early-stage businesses or high-growth sectors.

4. The relief is scrapped entirely: This is less likely in the short term, as it would be politically sensitive and affect a wide range of small business owners who rely on the relief as part of their exit planning.

Should business owners be concerned?

At the time of writing, there are no confirmed plans to scrap Business Asset Disposal Relief. However, business owners planning to sell in the next few years should remain alert to changes, particularly around Budget time.

It is wise to factor in possible tax reforms when planning an exit. Working with an accountant or tax adviser can help you assess the timing of a sale and the likely tax implications under current and potential future rules.

If you are eligible and considering selling soon, you may wish to explore whether accelerating the sale would allow you to lock in the 10 percent rate while it remains available.

Final thoughts

Business Asset Disposal Relief continues to offer real value for UK entrepreneurs, especially smaller business owners. While political and economic pressures may eventually lead to changes, the current government has not signalled any immediate intention to abolish it.

That said, the tax landscape can shift quickly. Staying informed, maintaining good records and seeking professional advice will help you make the most of the relief while it is still in place, and prepare for any future developments that may affect how business exits are taxed.