There has been much speculation about capital gains tax (CGT) rises in the upcoming Budget, scheduled for Wednesday 30 October 2024. Whilst we are often sceptical about such pre-Budget hype, preferring to await the reality rather than second guessing, this time around there is sufficient indication that this major threat for business owners could become a reality.
Notably:
Tax rises are a certainty, yet the new Labour government has ruled out changes to income tax, VAT and NICs
UK corporation tax already stands at its highest rate in 14 years, significantly higher than European and OECD Member averages
Of the remaining core taxes, only CGT and inheritance tax are seen as sufficiently progressive and targeted politically. Changes to the latter alone will have insufficient impact
Short of removing the CGT exemption on a sale of the family home, only a wholesale increase in the CGT is likely to have anywhere near the budget impact being targeted
A pilot consultation on the CGT treatment of ‘carried interests’ (for Fund Managers in the Private Equity arena) has been underway for the last month. which is considering many of the same issues as a wholesale CGT change
For us, it is no longer a question of whether CGT will be increasing, it is now a question of how much it will increase by and when it will. For private business owners, if the ‘how much’ will determine the impact, the ‘when’ will determine what, if anything, can be done about it.
In terms of quantum, the worst-case scenario would likely be abolish CGT altogether and simply assess the sale of a business to income tax at the top marginal rate (45%). For a business worth £10m, with 4 equal shareholders, this could nearly treble the overall tax cost of a full sale from £1.6m to £4.5m (£400k to £1.125m each). Or, to put it another way that business worth £10m today would need to worth in excess of £15m subsequently to achieve the same net value for shareholders. That is certainly not out of the question!
In terms of action that can be taken, the more important question is when this could happen. If such a change were being used for maximum political impact, it is likely to be brought about immediately (i.e. on the day of the Budget), which would mean nothing can be done beyond that point. If, on the other hand, it were being used to have the maximum potential tax raising impact, then a pre-announcement would likely be beneficial – an announcement of such a change from 1 April 2025, for example, would likely trigger a wave of economic activity amongst business owners prior to the increase.
Supporting business owners
For private business owners, particularly those who may have been considering some kind of transaction, or succession plan, in the relatively near future, the Budget may have a big impact on thinking and timing. Whilst, in most cases (but not all), it is now probably too late to accelerate any such plans before 30 October 2024, we are keen to ensure that all businesses are aware of our acclaimed corporate finance expertise.
If, as we believe is on balance most likely, CGT rates are to increase by pre-announcement from 1 April 2025, there is likely to be a huge demand for corporate finance and related services generally, meaning a significant risk of delays, price pressures and frustrated transactions, particularly for late-planned decisions.
Below you can access our handy corporate finance team guide which provides a short overview of the team which, led by Roy Farmer and Mark Tuckwell (two established names in the Midlands Owner-Managed Business M&A market), who come with a ‘can-do’ attitude and a hugely successful track record.
