CEO Sam Kemp argues that Britain’s growth agenda must be supported by a tax system that rewards entrepreneurial risk rather than discouraging it. He explains why certainty around Capital Gains Tax and Business Asset Disposal Relief matters for business succession, investment and growth, and why protecting incentives for founders should form part of a credible pro-growth economic strategy.
In his first major growth speech, the Chancellor pledged to make Britain a growth economy again, putting renewed focus on whether government policy can create the conditions for investment, enterprise and long-term business growth. While the speech set out a number of potentially positive measures to boost the UK’s economic performance, one important issue was notably absent: tax policy.
Speculation about whether Capital Gains Tax (‘CGT’) rates might rise again, or whether Business Asset Disposal Relief (‘BADR’) could be further scaled back, may be resolved in the upcoming Budget. The impact that uncertainty can have on entrepreneurial behaviour is relevant to any discussion about growth, particularly where owners are considering succession, reinvestment or exit.
Succession is often a vital stage in a company’s growth journey
Company owners can choose when to realise a gain. But selling a business is not just a transfer of ownership: succession often represents the next stage in a company’s growth journey. The risk is that founders could defer management buyouts (‘MBOs’), trade sales or other forms of exit while they wait for a more favourable tax environment, delaying decisions that could help their businesses move forward.
If this happens, some small and medium-sized enterprises (‘SMEs’) — which contribute a substantial share of GDP, are major creators of jobs and pay significant business taxes — may lose momentum or miss opportunities to realise their full potential. That could potentially weaken both individual company growth and the broader contribution SMEs make to the economy.
For example, an MBO can give a business an injection of fresh ideas and renewed ambition as well as capital, empowering management teams to make any necessary internal or strategic changes, reinvigorate plans to increase market share or take advantage of new opportunities. A trade sale can, among other benefits, bring about economies of scale, improve access to innovation or open up new markets.
After years of building a business, investing their own capital, contributing substantial “sweet equity” and making enormous personal sacrifices in the process, SME owners can feel that the rewards when they sell are eroded over time by changing tax policy. This year, headline CGT rates were raised to 18% for most basic rate taxpayers and 24% for higher rate taxpayers, while cutbacks to BADR mean those selling all or part of a business now pay 18% CGT on the profits, up to a lifetime limit of £1m, up from 10% before April 2025.3, 4
How to encourage enterprise and entrepreneurship
It was another Labour Chancellor – Gordon Brown – who in 2002 reduced the rate of CGT to 10% for disposals of business assets held for more than two years in a bid to build “a more enterprising Britain”.1 When John Healey says, “I want to see this country as a country of wealth creation”, he appears to echo that sentiment. The question is: how will he reward entrepreneurship and encourage investment in 2026?
The Chancellor has to raise revenue, his room for manoeuvre in other areas of taxation is restricted and CGT has been in the political crosshairs for some time. However, at the very least, protecting BADR from further limits would align with Healey’s implied entrepreneur-friendly message on wealth creation and should be a priority.
The risk is that if capital gains are taxed too highly, some owners may delay disposals, which could affect both growth and tax receipts. Estimates suggest that equalising CGT rates with income tax rates could cost the Treasury £7.8bn a year in lost revenue if people hold onto assets for longer.5
Tax policy must reinforce – not cut across – the growth agenda
The Chancellor’s pro-growth stance is welcome, and his plans to facilitate long-term investment and provide funds to support access to capital at a regional level, alongside regional devolution2, may well bear fruit. But they’re unlikely to yield sufficient results on their own.
If Growth Britain is a serious statement of intent, tax policy should support the wider growth agenda rather than work against it. It should give businesses the confidence to move into their next phase by giving founders who are ready to sell greater certainty when implementing succession plans.
Whatever else is announced in the Budget on 28 October 2026, shielding BADR from further erosion should be treated as a minimum. That would help to preserve the incentives available to those who take entrepreneurial risk, while encouraging productive business transitions to take place, so UK SMEs are owned by those best placed to support their future growth potential.
Sources
- House of Commons Hansard, Budget Statement, 17 April 2002.
- BBC News, Growth Britain.
- HM Revenue & Customs, Capital Gains Tax — rates of tax, updated 6 November 2024.
- HM Revenue & Customs, Business Asset Disposal Relief: How to claim.
- IG, Equalising Capital Gains Tax with income tax rates would cost Treasury almost £8bn, IG analysis finds, 23 June 2026.