Proposed Capital Gains Tax reforms make it imperative for business owners to sell now

Possible Capital Gains Tax reforms to be introduced by Rishi Sunak in the Spring Budget are leading business owners to bring forward their plans to sell. Mergers and Acquisitions Director Leanne Carling looks at what the changes, proposed by the Chancellor of the Exchequer, could mean for companies in the construction and building services industries.

The construction and building services industries are notoriously fragmented; as of 2018 there were approximately 325,000 construction companies operating in the UK, only 1% of which had 300 employees or more. In this scattered landscape, many small companies rely on the bigger contractors for the bulk of their work; if these large companies are lost, many medium and small companies simply can’t survive.

Those numbers make for a precarious industry at the best of times, and these are very far from the best of times. Our industry took the hardest hit of any in 2020 in terms of GDP; no sooner were we able to open up again than Brexit began to change the employee landscape.

But we were given a reprieve of sorts in November 2020 by the Chancellor of the Exchequer. Rishi Sunak was widely expected to announce reforms of the Capital Gains Tax system in the autumn budget, but decided not to press ahead with it. Now though, when one in 8 construction firms fears they will not survive the next three months, it’s widely speculated that CGT reform will feature in the spring budget on March 3rd.

Calculating the impact on your business
The suggestion is that Capital Gains Tax (CGT) will align more closely with the income tax system; for higher earners this could mean doubling the amount of CGT rates paid, from 20% to 40%. Secondly, there is the possible abolition of Entrepreneurs Relief, which entitles business owners to a reduced CGT rate of 10% on the first £1m of capital gains they make, should they decide to sell their business.

Taken together, these potential changes means that small-medium business owners who are contemplating the sale of their business, need to move swiftly. Just look at the example below for an idea of the difference these changes might make to your personal finances after the sale of your business.

“A taxpayer who sell their business today for £5m … would pay £900,000 of CGT. If the sale took place after the abolition of the relief and an alignment between CGT and Income Tax rates, the bill would rise to £2.25m.” – Forbes

Make a plan

If it was in your two, three, or five year plan to sell your business, it’s not easy to consider bringing the sale forward with such urgency. However, leaders in our industry all know that it’s been a long and difficult few years, and less cash in your pocket after a sale might be the final straw. At United Capital, we are seeing a dramatic uptick in the number of business owners contacting us, from every corner of the UK, to discuss a potential sale before the suggested changes are implemented.

They understand that waiting for circumstance to improve is becoming more unlikely with every passing month, and they see real value in the support services that we bring to our group companies. With our financial support, legal, HR, and health and safety advice, and dedicated marketing agency, we see our subsidiaries turn their fortunes around once they become part of the group.

Leaders who are almost ready to sell should be having conversations right now to beat the looming deadline of April 1st, when these proposed changes are likely be implemented. Talk to us at United Capital, so we can help you understand the benefits of selling your business before changes are implemented at the beginning of the new financial year.