The recent Autumn budget introduced a number of expected and unexpected changes under the new Labour Government, with a particular focus on capital gains tax (CGT). Preparing your company for sale requires significant understanding, thought, and planning, especially following the announced changes. Below, we explain the BADR changes, their potential impact, the typical deal process and how Moore Barlow can help.
Business asset disposal relief (BADR)
Business Asset Disposal Relief (BADR), previously known as Entrepreneurs’ Relief, is a CGT relief designed to incentivise individuals to grow and invest in their business. It represents a valuable source of relief for higher and additional rate taxpayers. BADR is available on the sale of all or part of your business, including business assets, reducing the CGT rate on qualifying gains to 10%, compared to the current standard rate of 20%. This relief is subject to a £1 million lifetime limit on gains, with the current maximum potential tax saving under BADR being £100,000.
Changes to BADR from April 2025
Under the Government’s budget, the CGT rate on gains claimed under BADR will increase:
- From 10% to 14% for disposals made on or after 6 April 2025.
- From 14% to 18% for disposals made on or after 6 April 2026.
Preparing your company for a share sale
In order to utilise BADR relief before the proposed rate changes in April 2025 and April 2026, some initial steps which you can take in anticipation of a sale of your company include the following:
- Business Valuation
Obtain a professional valuation or use industry benchmarks. - Finding a Buyer
Explore channels such as brokers, corporate finance houses, personal connections, or online platforms. - Document Preparation
Collate all essential documents, including employment contracts, supplier contracts, financial records, and statutory registers, into one folder. Ensure all documents are present and accurate, and rectify any errors before negotiations. - Due Diligence
Conduct a thorough review of documents to ensure they are well-maintained and attractive to a prospective buyer.
Importance of preparation
There are good commercial reasons for being well-prepared in advance of a potential company sale, including:
- Ensuring Accuracy
Accurate and up-to-date documents are crucial for establishing the company’s legal compliance and credibility. Incomplete or inaccurate records may take time to rectify, which could cause significant delays, lead to price renegotiations or more seriously jeopardise the overall sale transaction. - Streamlining Due Diligence
Correct documents facilitate faster due diligence checks and reduce indemnity or liability risks. - Enhancing Buyer Confidence
Well-prepared documents demonstrate the seller’s professionalism and transparency, positively impacting the negotiation dynamics. - Avoiding Legal Complications
Compliance with legal requirements helps avoid potential legal complications and penalties.
Typical share sale transaction process
Every transaction is different, but they tend to follow the following framework:
- Instructing a Solicitor
Choosing the right legal team is essential for a smooth completion of your share sale. - Non-Disclosure Agreement (NDA)
The NDA provides protections in relation to confidential information which might otherwise be leaked into the public domain. - Heads of Terms
The heads of terms outline the contract’s key terms, including the parties, assets being sold, and the estimated sale price. - Due Diligence
The buyer sends a questionnaire to the sellers raising queries in relation to the company’s financial health, contracts, assets, liabilities, and statutory registers. - Share Purchase Agreement (SPA)
The SPA is the main contract covering the purchase price, terms, warranties, assets, liabilities and tax covenant. - Disclosure
The sellers protect themselves against a potential warranty claim by disclosing any relevant matters in a disclosure letter. These disclosures qualify the warranties set out in the SPA. - Ancillary Documents
Various ancillary documents are required in the context of a company sale. These include employment contracts, IP assignments, waiver of claims, stock transfer forms, resignations of outgoing directors, service agreements for incoming directors, indemnities and board minutes approving the SPA. - Exchange and Completion
Once all of the documents are agreed between the parties, the SPA and all other documents are signed. Upon completion of these documents the shares in the company are transferred to the buyer and the consideration is paid to the sellers. - Post-Completion
There are various post-completion actions which need to take place. This includes filing documents at Companies House and HM Land Registry, paying stamp duty to HMRC, issuing share certificates and updating the company’s Register of Members.
Estimated transaction timeframe
The transaction timeframe typically ranges between 8 to 12 weeks from the initial terms being agreed with a prospective buyer.
How Moore Barlow can help
With the preparation and due diligence stages often being time-consuming, this festive season is the prime time to start planning and executing your share sale to be well-positioned before the April deadline. A new year can bring new opportunities, and our Moore Barlow corporate lawyers are ready to support you this Festive season, ensuring a smooth and timely completion before the rise in BADR.
If you have any questions or are considering selling your company, get in touch with our corporate law team today.
