Business owners considering selling should act now to avoid possible tax increases

Business owners considering selling should act now to avoid possible tax increases

As the UK moves towards the next general election, there is increasing discussion around whether tax increases will be on the cards. In particular, there are suspicions that Capital Gains Tax (CGT) may rise whichever political party wins.

Raising CGT could be viewed as an ‘easy’ option for the Government given that there’s not a direct impact on the majority of the population. However, it’ll have knock-on effects across the UK’s owner-managed businesses community. As such, it may be worthwhile for owners who are looking at realising their assets to do so in a timely manner in order to avoid any hikes in relation to CGT.

Overview

A general election needs to be happen by January 2025, and Autumn 2024 is being seen as the most likely time for it. Inevitably, talk now turns to manifestos and what each party will pledge as a means of garnering public support.

The UK remains in deficit and the economy continues to struggle, likely meaning tax increases will be pushed. Although, parties will need to be careful with how they propose filling the black hole otherwise they could negatively impact their following. 

The business impact

CGT represents an appealing option for the Government to raise funds but the impact on businesses needs to be considered.  

Stimulating business growth can play a significant part in an economic upturn, so any tax hikes can’t reduce incentives for owners. It’s often a strategy for entrepreneurs to set up a business with the intention of exiting once growth ambitions have been realised. However, increasing taxes when these transactions are undertaken could discourage these businesses from being set up at all.

The economic value of Capital Gains Tax

Tax as a share of GDP was the highest it had been for more than 50 years but CGT remained relatively low at 20% for most assets (with a 10% rate on first million pounds for most trading businesses), especially when compared to 1988 to 2008 when it was equalised with the top rate of Income Tax.

However, raising CGT – worth around £16bn to the economy per annum, or approximately 1.7% of tax receipts in the last financial year – would not necessarily increase tax yields as the crystallisation of assets tend to be one-off events.

The sooner rather than later factor

At the moment, almost every conversation we have with business owners about succession or exit options leads on to the general election. It’s no doubt causing some uncertainty and will continue to do so until any outcome.

As a means of navigating this uncertainty and potentially missing any CGT rise, business owners contemplating a full or partial exit should be looking at and discussing options with an expert advisor over the coming months.

Realistically a transaction from scratch can take up to a year – depending on various factors – so it’s important to plan early.

We are here to help

If you have any questions in relation to a business sale or would like to discuss your options, please get in touch with a member of our specialist team or your usual Azets advisor.