Article provided by Yvette Jacobs-Lee, Partner at Moore Kingston Smith, for Beacon Gainer, private wealth advisory services group.

The Office of Tax Simplification’s recent report on capital gains tax (CGT) makes a number of suggestions to the Chancellor which would fundamentally change the CGT tax rules in the UK if he chooses to adopt them. This clearly signals the direction of travel as they include aligning the CGT rate with income tax rates which would dramatically increase the tax due when businesses are sold. The likelihood of capital gains tax rates going up in the future is very high.

This would be a major blow to those who have spent long lean years building up their businesses with an eye on the prize of realising the value through some sort of exit event. It was only in March 2020 that the entrepreneurs’ relief limit was reduced from £10 million to £1 million with a balance of capital gains tax payable at a rate of 20%. If this 20% rate increases to 45% from Budget day then, in a little more than a year, business owners will have seen a fourfold increase in the total tax they will pay when they sell their business.

Standing in the shadow of Coronavirus with Brexit looming is arguably not the time to panic and rush an attempt to sell your business, and there are many other routes to consider.

You need to talk through what is possible in the time available and how to maximise the value that can be generated in the current economic climate. For example, areas to explore include:

  • Management buy-out structures
  • Family succession planning using trusts
  • Indirect employee ownership, using a tax exempt disposal to an employee ownership trust

The Spending Review gave us no hints about how the Government will pay for current spending commitments, but it is likely that there will have to be increases in tax revenues in the future.  The recent OTS Report into CGT is just one of many that have been commissioned in the last 12 months or so, and IHT is also an area that seems ripe for attention.   The Budget could be delivered sometime early in the new year once the uncertainty of Brexit negotiations has ended, but consideration of potential actions should be taken now.

For more information on the above, please feel free to get in touch with Yvette Jacobs-Lee on 020 7566 3784 or via email YJacobs-Lee@MKS.co.uk