BLOG - Thinking of selling a business? You might want to act now
Monday, 26 October 2020
With the continued impact of COVID-19 and the looming uncertainty of Brexit, many business owners would be forgiven for thinking that now isn’t a great time to be selling a business. This view would be reinforced by the overall dip in the number of business sales the UK has seen in 2020. However, in recent weeks we’ve had a significant increase in enquiries from business owners wanting to sell a business. Why is that?
Well, there are two factors that are starting to change business owners’ minds about selling a business; namely, tax and time.
Firstly, tax. There’s much speculation in the financial press that tax rates are going to change in early 2021. In particular, the Chancellor has commissioned a review of capital gains tax (the tax paid by business owners when selling a business), and there’s only one direction that any resulting changes to the tax rate is likely to go… and sadly, it’s not downwards!
Without an accurate crystal ball (has anyone got one of those?!) we don’t know what the capital gains tax (CGT) changes are likely to be. It could mean the abolition of Entrepreneurs’ Relief (recently retitled Business Asset Disposal Relief) which reduces the CGT rate to just 10% on the first £1 million of lifetime gains. Instead of this, or as well as, there could be an increase to the current standard rate of CGT of 20%.
To illustrate, let’s say a business is sold and the owner makes a £5 million gain. Under the current rules, the CGT could be £900,000. However, if Business Asset Disposal Relief is abolished and the standard rate of CGT increases to, say, 30%, the tax would be £1,500,000; an increase of £600,000.
Secondly, time. You can buy lots of things with the money you make from selling a business, but you can’t buy time. Yes, everyone quite understandably wants the best price they can get for their lifetime’s work, but not necessarily at any cost. Every extra day spent owning the business is a day less that they can spend on an exciting new chapter in their lives.
And when you think about the potential tax increases, you might need to increase the value of your business by as much as £600,000 to just stand still.
Time’s also running out to act. Any CGT changes are likely to be effective from the next Budget day. There’s no fixed date for this, but we’re assuming for the deals we’re currently working on that the Budget will be in March 2021. The process of selling a business often takes six months or more, but with well-motivated buyers and sellers, it’s still possible to do something now.
If you’re interested in selling a business, please contact me or Jack Minns and we would be pleased to explore your options with you. You can find contact details on the Our People section of the Larking Gowen website. Alternatively, call 0330 024 0888 or email firstname.lastname@example.org.