Tax Concerns Motivating UK Sellers

Real Business posted Livingstone’s comment on Entrepreneur’s concerns as the main political parties ramp up their election rhetoric.

The risk of a change in the political complexion of the UK government in or before May 2015 is starting to prey on entrepreneurs’ minds as the main political parties ramp up their election rhetoric.

From 6 April 2011, the Conservative-led coalition government ushered in a meaningfully more benign capital gains tax (CGT) regime for private company sellers by increasing the cap on Entrepreneurs Relief (under which eligible shareholders pay CGT of 10%) to the first £10m of their ‘lifetime gains’. While the Relief was introduced by the previous Labour government in April 2010, the original cap had been set at just £2m. BY comparison, the UK’s prevailing CGT rate is 28%.

In recent weeks, the Labour Party has indicated that – if it regains power – it intends to increase  income tax for individuals with incomes over £150,000 from 45% to 50%. This provoked a tart response from the UK business community, which logically sees a reduction in – or even abolition of – Entrepreneurs Relief as an inevitable follow-on step.

For entrepreneurs that have worked hard to protect, preserve and build value – and jobs – in their businesses through the economic crisis, the prospect of a more penal CGT regime is, for many, the last straw as the Labour Party (as any political party seeking power would) focuses on winning the popular vote rather than protecting a ‘privileged’ business community.

Increased business confidence since late 2013 is driving a noticeable escalation in interest from business owners looking to sell their business, many of them having had to sit tight since 2008 for a suitable ‘exit window’ to open. Anecdotally, it is becoming clear that the potential threat to Entrepreneurs Relief posed by a Labour or Liberal-Labour coalition government is now motivating entrepreneurs to consider an exit with a more acute sense of urgency.

While transactions are taking less time to conclude than for many years, a well thought-out and executed sale process takes nine months from inception. To avoid being faced with a ‘back against the wall’ bargaining position in Q1 2015, sellers concerned about this very real risk need to consider appointing advisers within a matter of two to three months to be sure of an attractive outcome.

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