Capitalising on Tax Opportunities: Selling Your Business Ahead of Potential Tax Hikes

3 mins

Posted on 09 Oct 2023

Capitalising on Tax Opportunities: Selling Your Business Ahead of Potential Tax Hikes

The possibility of tax changes following a general election can significantly impact the business landscape, especially for business owners considering selling their ventures.

When are tax changes likely to occur?

Historically, general elections in the UK have led to changes in tax policy, especially where there is economic uncertainty, or a change of party. Tax policies are subject to adjustments with each electoral cycle, and business owners may wish to consider selling their businesses before any potential tax hikes that may follow a general election, as timely decision-making can significantly impact financial outcomes.

Whilst taxes generally are relatively high compared to historic rates, capital gains rates are actually quite low at 20% for most gains, with the possibility of 10% on the first £1,000,000 where Business Asset Disposal Relief applies. Recently, capital gains rates have been equalised with income tax rates, so business owners have been blessed with historically low capital gains taxes, but there is uncertainty as to whether that will continue.

Selling before a tax hike: What are the benefits?

The political landscape can have a significant impact on anticipating potential tax reforms, and business owners need to be strategic in timing the sale of their businesses to optimise financial gains. Acting before any potential tax hikes can enable business owners to benefit from the existing tax regime and preserve a larger portion of the sale proceeds. Whilst a business owner may be focused on achieving the best price, the applicable tax regime can actually have an equally large impact given that the tax payable on any gain can be amended significantly with little notice; the difference between a 20% and 45% tax rate on gains made can obviously be significant, and it may be better to sell now, at a lower price, than later.

By selling before anticipated tax hikes, business owners may have the opportunity to mitigate tax liabilities or at least have certainty. Implementing tax-efficient strategies, such as utilising available exemptions, allowances, or reliefs, can help minimise the overall tax burden and enhance the net proceeds from the sale.

An alternative option, for vendors focused on a highly tax efficient sale, is to sell the business to an Employee Ownership Trust (EOT); the sale of a controlling interest in a company to an EOT is exempt from CGT (Capital Gains Tax) and sale proceeds do not deplete the Business Asset Disposal Relief (formerly known as Entrepreneurs’ Relief). Additionally, an employee ownership structure is proven to offer many benefits, including an improvement in staff motivation and retention.

Potential buyers often seek stability and predictability when considering a business acquisition. Uncertainty regarding tax changes following a general election can deter prospective buyers or affect the valuation of a business. By selling before a potential election-induced tax hike, business owners can provide a level of certainty that can be appealing to potential buyers, facilitating smoother transactions and better valuations.

For information on how we can support your business, please visit our corporate services pages or, alternatively, you can contact Thomas Clark from our Corporate team.

Thomas Clark

Thomas is an experienced corporate lawyer who advises clients on matters including business sales and purchases, shareholder agreements and articles of association, reorganisations, preparation for sale, and employee incentives.

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The articles published on this website, current at the date of publication, are for reference purposes only. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your own circumstances should always be sought separately before taking any action.

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