What's around the next corner?
With the Autumn budget being delayed until March 2021 there are ominous signs that the Chancellor of the Exchequer will be looking to rise Capital Gains Tax.
It could be brought in-line with Income Tax in an attempt to recoup some of the £190 billion the Government has earmarked for the economy throughout and beyond the ongoing pandemic.
In July, he commissioned a review into Capital Gains Tax and also went on record stating "tough choices lay ahead" which some took as code for 'tax rises'.
If Capital Gains Tax is to be brought in-line with Income Tax this would likely be a phased process over the next 2-3 years.
However, if you look at the reduction in Entrepreneurial Relief in March of this year which was introduced with immediate effect, the same thing could happen with a rise in Capital Gains Tax
This would have a huge affect on company owners looking to sell or dispose of assets.
How could this impact me or the sale of my company?
Let's look at a real-world scenario:
Two equal Shareholders sell their company for £20million.
At the current rate of Capital Gains Tax:
| Stands to earn | Tax payable on first £1m at 10% | Tax payabale on remaining £9m at 20% | Total Tax payable | Walk away with | |
|---|---|---|---|---|---|
| Shareholder 1 | £10m | £100k | £1.8m | £1.9m | £8.1m |
| Shareholder 2 | £10m | £100k | £1.8m | £1.9m | £8.1m |
As a worst-case scenario:
| Stands to earn | Tax payable at 45% | Total Tax payable | Walk away with | |
|---|---|---|---|---|
| Shareholder 1 | £10m | £4.5m | £4.5m | £5.5m |
| Shareholder 2 | £10m | £4.5m | £4.5m | £5.5m |
As you can see, this soon adds up and makes selling a less lucrative and appealing proposition.
We generally recommend company owners review their exit strategies every six months with various market activity affecting company valuations.
As you look ahead towards March 2021 and the uncertainty of the current pandemic you would be forgiven for 'holding off' on risk-taking, making any big decisions, and implementing any previously agreed strategies - but with this potential looming tax increase we urge you to consider is now the right time to sell?
We are witnessing first-hand that there is still an appetite for investment and acquisitions, in some sectors this has even increased, the main problem is there are not enough available companies to acquire.
If you are a company owners considering a sale in the next 2-3 years then get in touch for a conversation now. Delaying could mean the difference in literally millions of pounds.
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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