Chancellor Rishi Sunak's decision to postpone the autumn budget until spring could be a boon to business owners looking to sell their companies.
That is the verdict of corporate finance expert Sue Green of Swindon-based Watersheds, which specialises in completing acquisitions, disposals, management buy-outs and buy-ins and fundraising across all sectors.
The Chancellor's decision to postpone was prompted by his need to deal with the economic impacts of covid-19, and on his Conservative Party conference speech he warned that hard choices would need to be made to tackle record levels of national debt incurred during the pandemic.
The decision to postpone the budget, according to Sue Green, means that any rise in Capital Gains Tax (CGT) rates that the Chancellor may be planning won’t be introduced until early next year - but his determination to tackle covid-related national debt will almost certainly involve hikes in taxation.
Sue said: “The budget delay provides owners who want to sell their businesses with the opportunity to keep their tax bill as low as possible, as long as they move swiftly.
“But the word ‘swiftly’ is the key here. Last summer the Chancellor commissioned a review of CGT in relation to individuals and small businesses, and it is widely anticipated to result in wide-ranging changes that will bring CGT more in line with Income Tax.
"Our industry expected that to be introduced as part of the autumn budget, but the postponement will provide a short reprieve for company owners hoping to sell their businesses, and who want to keep their tax bill for doing so as low as possible.”
Sue says that at the moment CGT on the sale of shares is calculated at 10 per cent or 20 per cent, depending on whether the owner qualifies for business asset disposal relief (BADR).
“This is in stark contrast to the 20 per cent, 40 per cent and 45 per cent rates of taxation on Income,” she added.
“Put bluntly, if you sell your business for £5million today, and providing you qualify for BADR, you will pay £900k in Capital Gains Tax.
"If in the spring the Chancellor does decide that capital gains are to be taxed at the same rate as income tax, the CGT on the same sale could be as much as £2.25m.
“Realistically, it must be highly likely that there will be substantial changes to CGT to bring it more into line with income tax.
"The economic impact of covid-19 is huge, and come the spring, the collective attention of the Chancellor and HMRC will almost certainly be focussed on changes which have the potential to raise significant sums of additional money for a severely depleted Treasury.”
However, Sue contends that as long as owners looking to sell begin the process very soon, a sale at a decent price is feasible.
“The market for buying and selling good businesses remains reasonably robust, in spite of all the challenges posed by Coronavirus,” she said.
“Having completed two transactions during the strict lockdown, we at Watersheds have several others in the pipeline to complete before the end of the year, and at pre-lockdown values.
“But I can’t emphasise too much that anyone who wants to minimise the potential tax burden has a very short but opportunistic window of opportunity.
"Those who do want to capitalise on this need to move quickly, to retain a considerable proportion of the value that they have probably worked very hard over many years to build up.”
Watersheds' website is www.watersheds.ltd.uk