Don’t be alarmed by the Capital Gains Tax noise
Media reports are predicting a rise in Capital Gains Tax will be included in the upcoming Budget – but company owners have no need to be alarmed.
Rachel Reeves, Chancellor of the Exchequer in the new Labour government, delivers her first Autumn Statement on October 30, which will be designed to kick-start the party’s leading election manifesto to restore UK economic stability.
Among the anticipated measures is an increase in the CGT rate, which is applicable when shareholders profit from selling a company.
At KBS Corporate, we understand this may be a cause for concern. However, we are fully prepared for what might happen and, thanks to the expertise we have amassed over the past 25 years, and our previous experience in navigating similar challenges, we can alleviate any unease our clients have about how their transaction could be affected.
When you work with a leading corporate finance adviser like KBS, independently ranked No.1 in our industry, you can benefit from mitigations which can be factored into a transaction to ensure you retain all the value you have worked hard to build into your company.
For instance, we have complete belief in our capability to negotiate transactions in which the increased tax burden is offset by the buyer paying a higher sale price.
“It’s feasible that conversations will be held with regards to the deal value or structure to compensate for, and indeed minimise, the tax implications,” explained Daniel Welsby, Head of Corporate Finance Outreach at KBS.
Additionally, don’t forget that company owners are eligible for Business Asset Disposal Relief (BADR), which was initially introduced as Entrepreneurs’ Relief.
Under the current rules, BADR reduces the rate of CGT from 20% to 10% when disposing of your company or assets. The scheme has a lifetime allowance of £1million and you must have owned your company for over two years to be eligible.
Before April 2020, however, when BADR was renamed from Entrepreneurs’ Relief, the measure was more favourable to company owners because the lifetime limit had been £10million.
Nevertheless, that scenario was navigated by KBS Corporate’s team of expert advisers without losing any impetus in our deal activity – indeed, on the contrary, we have gone on to enjoy record-breaking years such was our capability to combat such headwinds.
“There may be a period when acquisition activity slows down whilst the market stabilises, but demand for the right opportunities will remain high and deals will be done,” added Daniel Welsby.
Holly Bedford, Managing Director of K3 Tax Advisory, which sits alongside KBS Corporate in the K3 Capital Group of financial services companies, also envisages ways in which company owners can offset any rise in the CGT rate.
“Although time is very tight to complete a sale before October 30, even if the tax rates do increase it’s very likely that tax rates on trading company sales will be favourable compared to other tax rates,” explained Holly.
“Other tax planning opportunities will still be available including – if it fits with the seller’s objectives – a sale to an Employee Ownership Trust, which is entirely tax free.” Our full explanation of Employee Ownership Trusts can be found here.
And from an independent perspective, take the viewpoint of Subrah Krishnan-Harihara, Greater Manchester Chamber of Commerce Deputy Director, who feels the Capital Gains Tax rise is being afforded more importance by the media than it warrants – and also, as we said at the beginning, that company owners should not be alarmed.
“Issues like CGT in the long term are insignificant,” he said. “It’s the noise that’s distracting rather than the actual measure.”
If you would like any advice or guidance regarding an exit from your business, our team of experts is available to help. Call 0161 258 0118 with complete discretion assured, or contact us through this website.