The spectre of tax changes – is now the time to sell your business?

With this window likely only six months long and the M&A market in full swing, this could be the best time to sell your business for the next few years.

The Chancellor’s September announcement led many of our clients to breathe a sigh of relief. After the blow of the Entrepreneurs’ Relief limit reduction in March from £10m to £1m, the possibility of Autumn changes to CGT was a cause of significant concern to those entrepreneurs we were already in sale processes with.

This means a window of opportunity has now opened for more. If you’re considering exiting your business you now have time to sufficiently plan, prepare and exit and avoid the CGT uncertainty that Spring 2021 will surely bring. It’s not a huge window as we’d normally advise starting to plan an orderly exit at least 12 months in advance, but nevertheless it’s a window, and for those who have been considering an exit you’ve definitely got enough to time to complete your transaction. We’ve already started working with clients who hesitated on a sale at the end of last year, and then found themselves demotivated by events last Spring - the change in Entrepreneurs’ Relief back in March and then the simultaneous onset of COVID-19. These clients don’t want to miss out this time.

Fortunately, the M&A market remains very buoyant. There’s a lot of money in the market for those looking to sell to listed companies, private equity backed businesses and the PE firms themselves and most of this money isn’t looking for distressed businesses. COVID-19 has increased the desire for good, stable, profitable business, meaning there’s a potential premium on these businesses as there are fewer of them. So even if there is some uncertainty in your business it’s still possible to achieve a good exit if the underlying business is strong.

For most entrepreneurs, the tax spectre continues to lurk in the distance and the doom-mongers do talk about a convergence of CGT with income tax. It’s impossible to predict whether, even if changes like that did come in, it would affect entrepreneurs or more likely be targeted elsewhere - second home owners for example. Also, there’s no real certainty that increasing taxes is actually the way out of what could be an economically gloomy 2021.

However, our job isn’t to crystal ball gaze too much, but deal in facts, and we do know two things. Firstly, the Spring budget will create significant uncertainty for entrepreneurs, with only one way the tax rate is likely to move, if it does. And secondly, no matter what you are told, other than a genuine exit to a third party or to your management team, there is very, very little you can do to lock in today’s tax rate. 

At times like this, we often hear of “clever tax planning” in the industry, which entrepreneurs look to take advantage of. Best case scenario, this often leaves entrepreneurs out of pocket having wasted large sums of money on fees for planning that didn’t work, and worst case, leaves them with long-running court battles with HMRC owing millions and staring at bankruptcy.

Therefore, our advice is if you have a good business and you’re considering selling, have a conversation with us before the window closes. Then at least you can make an informed decision and not have any regrets should any potential changes come into effect in Spring. We encourage you to do this sooner rather than later to minimise any last minute, rushed sale processes starting early next year. And if approached to do any “clever tax planning”, don’t be afraid to get a second opinion.