UK business owners have fast-tracked their exit plans over the past 12 months as CGT Budget raid looms, according to new research from professional services group Evelyn Partners.
Nearly one in three have accelerated business exits in the last year, ahead of the upcoming Budget on October 30th where increasing CGT rates could take centre stage in the Chancellor’s statement, according to the research.
This is a slight uplift on the 23 per cent who said 18 months ago that they had brought forward business exits over the previous year.
The research found nearly a third of the 500 business owners with turnovers of upwards of £5 million surveyed by Evelyn Partners who had fast-tracked their exits in the last year had done so because of worries about an increase in CGT.
In addition, 20 per cent brought forward business exits over the past 12 months because of fears of potential cuts in IHT reliefs, which could make it more costly to pass businesses on to the next generation – the study suggests.
The Government has ruled out increasing the main rate of corporation tax above 25 per cent and has pledged to freeze headline rates of VAT, income tax and NICs in the Budget.
However, the Treasury has appeared remained tight-lipped so far on the outlook for CGT rates and IHT reliefs, as well as the tax rules around workplace pensions.
Other factors are also at play, with 25 per cent of business owners who had fast-tracked business exits saying they had done so because of personal finance challenges resulting in a need to access the capital tied up in their business. In addition, 24% brought forward plans due to increased costs of accessing capital as a result of rising interest rates.
Laura Hayward, tax Partner at Evelyn Partners commented: “As the countdown to the Budget on October 30th ticks away, we have been contacted by an increasing number of business owners worried about what the Chancellor will do to CGT and IHT. The Prime Minister’s statement that the upcoming Budget would be ‘painful’ has put owner-managed businesses on edge and this has prompted many to want to exit as quickly as possible.
“The fact that more business owners have fast-tracked their exit plans in the last year compared to when we conducted similar research 18 months ago tallies with our own anecdotal experiences. As opinion polls increasingly suggested a change in government and the consequential potential for tax changes was becoming more likely, an increasing number of business owners have got in touch with us to have conversations about business exits.
“The business environment for many owners has already been tough enough in recent years as they have worked hard to rebuild their businesses after the pandemic, against a backdrop of cost-of-living pressures and high inflation. Add to that the potential for unfavourable tax changes in the upcoming Budget and it’s completely understandable that some are hoping to realise the gains of their successes sooner rather than later. Owner-managed businesses are the beating heart of communities up and down the country, and they need to be given incentives to take risks and create the jobs that will stimulate much-needed economic growth.”
Of those owners who are currently working towards a business exit, family succession (22 per cent) is the most popular strategy followed by establishing an employee ownership trust (16 pr cent).
Laura Hayward added: “Given the most popular exit strategy vehicle is family succession, there is an added urgency for many business owners to get their tax affairs in order ahead of the Budget. Speculation is rife that the Chancellor will curtail Business Relief which can help to soften burdensome IHT liabilities and we have had conversations with many business owners who want to fast-track succession plans while this valuable relief is still available.
“Setting up employee ownership trusts has been gaining ground as an exit strategy for business owners in recent years, so it’s no surprise to see these score highly in the research. Setting up an employee ownership trust can be a faster process than going to market, while at the same time giving business owners greater control of the valuation of the business.
“Whatever strategy is used, exiting a business is a really big decision for business owners and it’s important that they put in place a plan that is appropriate for them and their business. They need to carefully consider a range of factors, with possible changes to the tax regime being just one aspect. Holistic advice considering both the business and personal implications of a sale will help make the exit – which can be fast-tracked if need be – as successful as possible.”
