Business owners should beware of rushing to market to sell up before a potential Autumn tax raid in Labour’s first budget.
That’s the message from Andy Kay, corporate finance partner at national audit, tax, advisory and risk firm Crowe.
Mr Kay, who leads the corporate finance team across the firm’s Midlands and South West regions, said directors should be wary of the “tax tail wagging the investment dog”.
He was speaking after a surge in the number of acquisitions and mergers was recorded in the first quarter of 2024 – thought to be prompted by business owners preparing for a Labour government and seeking to sell up before taxes rose.
“My concern is that more businesses hitting the market at the same time, and a desire to do deals quickly, will depress the prices being paid – and business owners, looking to avoid tax increases, will lose out in the first instance.
“Haven’t we been here before with rumblings before various Autumn statements, particularly post-Covid, albeit under a different administration?
“Should there be any significant capital gains tax (CGT) rate rise, and I am not sure about this myself, then this may well stymie activity, resulting in the net CGT tax take being depressed in the longer term.”
However, he said that businesses already in the process of selling, and happy with the valuation, should aim to complete the deal before the Budget.
“Things may not change then, but I can’t see them getting better. So, if the process is in train, and the value is acceptable, then focus on getting the deal across the line.”
He said he thought the government is more likely to look at refining the Business Asset Disposal Relief/Entrepreneurs’ Relief, making it more targeted towards genuine retirement sales.
“Ironically, this was first introduced in 2008 by Gordon Brown’s Labour administration, but it could be argued it is overdue a further examination.”
He cautioned business owners to weigh up all the factors before deciding on whether to sell, merge or continue with existing business plans.
“If the economy is improving, inflation remains lower and growth picks up, banks will gain further confidence about lending, and this may have a potential bearing on prices paid in the future.
“Jumping now to avoid a CGT tax rise – the size and likelihood of which we don’t know – could be at the expense of potential future gains which might outweigh any further tax paid.”
