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UK Business Owners Accelerate Exit Plans Amid Capital Gains Tax Concerns
Recent research indicates that a significant number of business proprietors in the UK have expedited their exit strategies over the past year, largely driven by anxieties surrounding a possible increase in capital gains tax (CGT) in the forthcoming autumn budget.
According to a survey conducted by Evelyn Partners, a professional services group, 29% of business owners have hastened their exit plans in the last 12 months. This marks an increase from 23% reported 18 months prior. The study surveyed 500 UK business owners with annual revenues exceeding £5 million.
Among those who opted to expedite their exits, 23% cited concerns regarding a potential hike in CGT as a contributing factor. CGT is charged on profits realized from the sale of assets that appreciate in value, including companies. Typically, the tax ranges from 10% to 20% when selling a business.
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Speculation is mounting that Chancellor Rachel Reeves may propose an increase in CGT during the budget announcement scheduled for October 30. This consideration appears to be part of efforts to address a £22 billion gap in public finances.
The Guardian recently reported that Reeves may consider raising CGT to as high as 39% in her upcoming budget.
Furthermore, the research from Evelyn Partners revealed that one in five business owners hastened their exit due to concerns about potential cuts to inheritance tax (IHT) reliefs. Such changes could complicate the transfer of businesses to the next generation.
IHT is levied on the estate of deceased individuals, starting at a threshold of £325,000 with a standard tax rate of 40%. Certain business assets may qualify for either 50% or 100% relief from IHT when passed down.
There are apprehensions that Reeves might raise the IHT rate from 40%, in addition to potential adjustments to business relief provisions.
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The study also underscored that around 25% of business owners who accelerated their exit plans did so due to personal financial challenges that necessitated liquidating the capital tied within their businesses. Additionally, 24% reported increasing costs of accessing capital linked to rising interest rates as another reason for their expedited exit decisions.
Laura Hayward, a tax partner at Evelyn Partners, noted that Prime Minister Keir Starmer’s assertion that the upcoming budget would be “painful” has left many owner-managed businesses feeling uneasy. This uncertainty has led many to expedite their exit strategies.
Hayward observed that the research findings align with anecdotal trends from their firm, stating, “As opinion polls increasingly suggested a change in government and the potential for tax reforms, an increasing number of business owners have reached out to discuss exit strategies.”
For business owners contemplating exits, family succession emerged as the predominant strategy identified in the research.
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Hayward added, “With family succession being the preferred method, there is an urgent need for many business owners to streamline their tax arrangements before the budget is unveiled. Speculation surrounds potential cutbacks to business relief, which could exacerbate IHT liabilities, prompting numerous business owners to expedite their succession plans while these relief mechanisms remain intact.”
Further research conducted by Bestinvest, part of Evelyn Partners, underscores the growing concern surrounding potential tax modifications in the upcoming budget. The firm noted a rise in savers utilizing the Bed and ISA strategy to safeguard their investments from prospective tax increases.
The Bed and ISA approach allows investors to sell taxable assets and repurchase them within a stocks and shares individual savings account (ISA). Bestinvest reported a 25% surge in Bed & ISA instructions on its platform since Labour’s decisive victory in the UK general election on July 5, compared to the same timeframe last year.
Source
uk.finance.yahoo.com