Small and medium-sized enterprises across the United Kingdom are voicing growing frustration after another rise in capital gains tax under the country’s Business Asset Disposal Relief regime, a move critics say is steadily weakening incentives to build and sell businesses domestically.
From 6 April, the tax rate on qualifying gains under Business Asset Disposal Relief increased from 14 percent to 18 percent on the first £1 million of lifetime gains. Once promoted as Entrepreneurs’ Relief, the scheme originally allowed business owners to pay 10 percent on gains up to £10 million. Over the past decade, the effective rate has risen by around 80 percent, with a further 28 percent increase in the latest adjustment alone.
Business advisers and legal experts say the cumulative changes are reshaping how founders think about long-term investment and exit planning. Many argue that the steady reduction in tax relief is eroding the financial reward for risk-taking, particularly for owner-managed firms that form the backbone of the UK economy.
Martin Rayner of Compton Financial Services said the policy shift cannot be viewed as a one-off change. He described it as part of a broader trend in which entrepreneurial success is increasingly taxed at exit, adding that rising employer national insurance contributions and wage pressures are compounding financial strain on business owners long before they consider selling.
Financial planner Scott Gallacher of Rowley Turton said the increase has a direct impact on retirement timelines for founders. On a £1 million business sale, he noted, the difference between the original 10 percent rate and the current 18 percent level equates to an additional £80,000 in tax liability, potentially requiring extra years of work to achieve the same financial outcome.
Lawyer Steven Mather said the impact becomes even more pronounced at higher valuations. He pointed to a £5 million sale where tax liability has risen from £900,000 under earlier rules to about £1.14 million today, calling it a substantial shift in the cost of exiting a business.
Nicoll of NCL Wealth Partners described the changes as a form of fiscal drag, where reliefs quietly lose value over time while thresholds remain unchanged. He said this is increasingly influencing decisions around timing, succession planning and business structure.
Criticism has also extended to government growth policy. Colette Mason of Clever Clogs AI questioned how the UK can encourage entrepreneurship while simultaneously reducing post-sale returns, particularly as ministers promote initiatives such as the £500 million Sovereign AI Fund aimed at supporting domestic tech founders.
Advisers warn that unless incentives are stabilised, the UK risks discouraging future entrepreneurs, even as SMEs continue to account for the vast majority of businesses and employment across the country.
