Should Healey cut Business Asset Disposal Relief back to 10%, as founders demand?
In 30 seconds
Healey has ruled out a capital gains tax rise on 28 October. Founders want the rate on business sales cut from 18% back to 10%.
HMRC says the relief's cost rose 209% mainly because founders brought sales forward ahead of rate rises. Separately, a capital gains rise was reportedly ruled out because it could lose money.
Keep 18%, legislate a three-year path for the rate and publish the Treasury's working on what higher rates would lose.
WhyWhat happened
Chancellor John Healey has ruled out raising capital gains tax in the Budget on 28 October, according to Treasury sources. Cabinet colleagues including Wes Streeting and Louise Haigh had pressed for a rise in the higher rate, now 24%. The Times reported the reason as warnings that a rise could cost the government money if wealthy people leave or defer sales. Labour's manifesto rules out rises in VAT, national insurance and income tax. Reversing the 2023 cut in the bank surcharge from 8% to 3% is understood to be under discussion and would raise around £2bn a year.
Stop the Creep, a campaign backed by more than 160 founders, business leaders and parliamentarians, has published five asks for the Budget. They include returning Business Asset Disposal Relief to 10%, ruling out any new tax on capital, and a three-year business tax roadmap. Signatories include John Caudwell, Lord Rose and Conservative frontbenchers Andrew Griffith and Priti Patel. The relief's rate rose to 18% for disposals from 6 April 2026, after 14% in 2025-26 and 10% before that.
What's really going on
The manifesto rules out VAT, national insurance and income tax, and capital gains tax has now joined them. That leaves a bank surcharge reversal worth around £2bn a year, expected to fund a cost-of-living package. Burnham has said the government must be conscious of past Labour tax rises, which City AM puts at £70bn, about 35 times the surcharge's yield.
Business Asset Disposal Relief is small. HMRC ranks it 14th by cost among the 40 largest reliefs it treats as policy choices rather than parts of a tax's basic design. Its forecast £3.4bn cost in 2024-25 is under 2% of the £218bn for all 103 costed that year, and relief on main homes alone cost £31.8bn.
Around 39,000 people claimed the relief on £10.3bn of gains in 2023-24, roughly £264,000 each. But the relief's cost rose 209%, or £2.3bn, between 2020-21 and 2024-25, the second-largest percentage rise of any large relief. HMRC attributes most of that to people selling early ahead of the rate rises.
The relief's lifetime limit was cut from £10m to £1m in March 2020, which the NAO says saved £1.6bn in 2021-22 alone. The rate has moved from 10% to 14% to 18% in two years. The campaign's five asks cover the rate and say nothing about the limit.
The strongest case on each side
The founders' case for 10%
- HMRC says the relief's cost jumped because founders sold early ahead of rate rises. Exit timing is elastic, so 18% may raise less than forecast.
- On the campaign's figures, only 1,400 companies sold for more than £1m in 2024 out of 5 million. The rate hits a rare success.
- Three rates in three tax years make exits impossible to plan. The campaign says the US exempts the first $10m of a company sale.
The case for holding at 18%
- On the NAO's account, the Treasury and ministers had already concluded the relief was costly and ineffective before its rate ever rose.
- Even at 18%, a share sale is taxed below the 24% capital gains rate and the 40% rate on wages. Cutting it widens that gap.
- With VAT, NI, income tax and CGT all ruled out, the Budget's main raiser is about £2bn from banks, expected to fund cost-of-living help.
My verdict: mostly wrong
The founders' behavioural argument is real, and the chancellor has just accepted the same logic for capital gains tax. But it supports stability, which costs nothing, more than it supports 10%, which costs money nobody has identified. On the NAO's account the Treasury judged the relief costly and ineffective before the rate ever rose, and even at 18% a sale is taxed below the 40% on wages.
The government is at fault too. Three rates in three tax years is poor tax-making, and its own costing expected about 30% fewer qualifying sales in 2026-27 as a result.
HMRC's June 2025 estimates show big higher-rate rises losing money, but their update is deferred pending a review of assumptions. Ruling out a rise on that ground without the current estimate asks everyone to take the Treasury's word.
What I'd do instead
Hold the rate at 18%, but fix the instability the campaign is right about and publish the numbers the Treasury is sitting on.
Legislate a three-year path for the founders' rate and limit
Adopt the campaign's fifth ask and write the relief's rate and lifetime limit for 2027-28 to 2029-30 into this year's Finance Bill.
- How it would work
- The Treasury publishes a roadmap with the Budget, setting the relief's rate and £1m limit for 2027-28 to 2029-30. Those figures go into the Finance Bill, so changing them needs fresh legislation.
- What it costs
- Nothing in cash if the rate stays at 18%. The price is flexibility, since a future chancellor gives up the option of a quiet rise in those years.
- Who it affects
- Founders planning a sale and their advisers gain certainty. The loser is any chancellor who wanted the rate as a revenue option before 2030.
- Tried before?
- A roadmap is the campaign's fifth ask, and the Entrepreneurs Network wants the rate held for this Parliament. The government's 2024 roadmap covers corporation tax only.
- The risk
- A legislated path invites a rush of sales before any scheduled change, the effect HMRC has already recorded. It also binds a chancellor who may need the money.
Publish the behavioural working behind the capital gains decision
Make the Treasury release the emigration and deferral estimates it relied on to rule out a capital gains rise, and apply the same test to the relief.
- How it would work
- With the Budget, the Treasury publishes the costings behind the capital gains options it rejected, split by emigration, delay and shifting. HMRC publishes its deferred tax-change estimates and evaluates the relief at 18% by 2028.
- What it costs
- Officials' time and no cash. The Treasury already costs the measures it adopts; this extends that work to the options it rejected.
- Who it affects
- Ministers lose the cover of unpublished numbers. Founders, and the cabinet colleagues who wanted a rise, argue from the same evidence.
- Tried before?
- Partly. HMRC's June 2025 estimates show big higher-rate rises losing money, and the The independent body that produces the official forecasts for the economy and the public finances. Each Budget is judged against them. published the 18% costing's assumptions. Neither splits the loss by cause, and the 2026 update is deferred.
- The risk
- Published assumptions invite lobbying over every number. If they show a rise would raise money, they reopen the cabinet argument the chancellor has just closed.
Cost the lifetime limit before anyone promises a rate cut
Publish the cost of options on the £1m lifetime limit, cut from £10m in March 2020, beside the cost of a 10% rate.
- How it would work
- HMRC publishes by spring 2027 the cost of raising the limit at an 18% rate, with claimant distribution, beside the cost of a 10% rate.
- What it costs
- Unknown. No current costing is published, and it depends on how many of the roughly 1,400 sales above £1m in 2024 the campaign cites would qualify.
- Who it affects
- Founders with gains above £1m, who are few. Anyone selling for less sees no change, and the Exchequer would lose a sum the exercise exists to establish.
- Tried before?
- The limit was cut in March 2020. The government has not proposed raising it, but the Entrepreneurs Network wants £10m for proceeds reinvested in UK businesses.
- The risk
- A higher limit concentrates the relief on the largest exits. That is where the evidence of poor value points, so the honest answer may be to leave it at £1m.
The trade-off
Holding the rate at 18% means some founders will sell abroad or wait, and HMRC's figures show they can. The first two proposals cost officials' time rather than cash, and the third only commits to finding out a price.
How we'd know it worked
HMRC's figures for 2026-27, the first full year at 18%, are the test. If claimant numbers stay near 39,000 while relief claimed falls, the earlier surge was timing; if claimants collapse too, founders are leaving or holding on.
What to watch
- The Budget on 28 October and the Finance Bill that follows it.
- The bank surcharge, cut from 8% to 3% in 2023 and reported to be the Budget's main revenue raiser.
- HMRC's next tax relief statistics, moved to summer 2027. The January 2026 edition forecast a sharp fall in the relief's cost for 2025-26, after disposals were brought forward.
Each of these is logged as an open call on my track record.
Sources
- City AM: John Healey rules out capital gains tax hike in Budget
- legislation.gov.uk: Finance Act 2025, section 8: business asset disposal relief, increase in rate
- ITV News: John Healey rejects calls to raise capital gains tax at the Budget
- Helm: Stop the Creep
- GOV.UK (HM Revenue & Customs): HS275 Business Asset Disposal Relief (2026)
- GOV.UK (HM Revenue & Customs): Tax relief statistics (January 2026)
- GOV.UK (HM Revenue & Customs): Non-structural tax relief statistics (December 2023)
- National Audit Office: Tax measures to encourage economic growth (summary), Session 2023-24
- Office for Budget Responsibility: Costing of changes to the main, BADR and IR rates of capital gains tax (January 2025)
- GOV.UK (HM Revenue & Customs): Direct effects of illustrative tax changes bulletin (June 2025)
- GOV.UK (HM Revenue & Customs): 2026 HMRC statistics announcements
- The Entrepreneurs Network: Representation to HM Treasury for Autumn Budget 2026
- GOV.UK (HM Treasury): Corporate Tax Roadmap (October 2024)