The budget we wanted?
Last Wednesday’s budget was viewed by many anxious eyes, particularly business owners.
With unprecedented levels of government borrowing in the last twelve months to claw back, many in the city forecast there would be immediate tax hikes across corporation and capital gains taxes.
But, for the majority of business owners, this was a positive budget all-in-all, for now. The chancellor deemed the 6% increase in corporation tax in two years to be a seemingly adequate compromise reserved for the top 10% of businesses in the UK. He has off-set this against the introduction of the super deduction tax which, only time will decide if a popular move.
With more government help for business owners on the way in the coming months by means of business rates freezes, grants, loans, and furlough extensions and a strong emphasis of encouraging growth we can be allowed to have some optimism as customers and clients emerge from the pandemic with an appetite to spend and invest.
More sectors will be re-opening in the coming weeks, further stimulating the economy, which is a massive plus for anyone in business. The butterfly effect of public spending will be extremely welcome after a harrowing year!
The future’s bright?
The ‘positive future’ rhetoric currently being spun as we look to be emerging from the pandemic would have been unwoven and an unwise political move had the Chancellor focused on increasing capital gains tax at this stage.
As it transpired, this budget was not the time for Rishi to deliver a deflating blow to business owners.
But, we were constantly reminded that “this is the highest government borrowing since World War II”.
Is this reminder a sign of more damaging tax rises to come in the future? Probably.
It seems inevitable that CGT will be increased at some point in the future. Mr Sunak did commission a review into CGT in 2020 and percentages of up to 45% were rumoured by some experts as a result. Do not forget, the next budget is less than 10 months away, this November.
Our table below highlights a worst-case scenario should we see some of the rumoured capital gains tax rates introduced in terms of walk-away cash from a company share sale.
This example is based on a company share sale valued at £30million:
| Current rate / system | Tax at 25% | Tax at 30% | Tax at 35% | Tax at 40% | Tax at 45% | |
|---|---|---|---|---|---|---|
| Enterprise Value: | Walk away with: | Walk away with: | Walk away with: | Walk away with: | Walk away with: | Walk away with: |
| £30m | £24.1m | £22.5m | £21m | £19.5m | £18m | £16.5m |
When this CGT increase will be is a topic of much debate. Our advice to company owners is to be prepared.
Anyone with an inclination to perhaps sell or exit within the next three years should seriously be looking now at how best to prepare to get the best return. With these potential CGT increases on the horizon, opting to exit a little earlier than planned could mean the difference in millions of pounds in your pocket.
Get in touch for a conversation now.
We are more than happy to explore your exit options and show how our Partner-led service can be of real benefit to you.
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