EMB FRI 00:01: UK business owners fast track exit plans amid fears of capital gains tax raid
Business owners in the UK have fast-tracked their exit plans over the past year, research has shown, which comes amid fears of an increase in capital gains tax (CGT) in the upcoming autumn budget.
Nearly a third (29%) of business owners have accelerated their business exits over the past 12 months, according to research by professional services group Evelyn Partners, released on Friday.
That represented an increase from 23% who said 18 months earlier that they had brought forward their exit strategies.
Of those that had decided to fast-track their business exit plans, 23% said they done so because of worries about an increase in CGT, according to the survey of 500 UK business owners with turnovers upwards of £5m.
This tax is levied on profits made from selling assets that have increased in value, including business assets. On the sale of a business, CGT typically ranges from 10% to 20%.
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There has been growing nervousness that chancellor Rachel Reeves will announce an increase in CGT in the autumn budget on 30 October, as she seeks to raise funds to fill the £22bn “black hole” in public finances.
The Guardian reported on Thursday that Reeves is considering raising CGT as high as 39% in the budget.
In Evelyn Partners’ research, a fifth of UK business owners said they had accelerated exit plans due to fears of potential cuts in inheritance tax (IHT) reliefs, which could make it more costly to pass businesses on to the next generation.
IHT is a tax levied on the estate of someone who has died, with a tax-free threshold of £325,000, at a standard rate of 40%. However, business owners can get relief from IHT of either 50% or 100% on some assets when passing them onto the next generation.
There are concerns that Reeves could raise the IHT rate from 40%, while another rumour is that the chancellor could make changes to business relief.
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The research also highlighted that a quarter of UK business owners who had fast-tracked their exit plans had done so because of personal finance challenges resulting in a need to access the capital tied up in their business.
In addition, 24% had accelerated plans due to increased costs of accessing capital as a result of rising interest rates.
Laura Hayward, tax partner at Evelyn Partners, said that prime minister Keir Starmer’s warning that the upcoming budget would be “painful” had put “owner-managed businesses on edge and this has prompted many to want to exit as quickly as possible”.
She said Evelyn Partners’ research also tallies with the firms’ anecdotal experiences.
“As opinion polls increasingly suggested a change in government and the consequential potential for tax changes was becoming more likely, an increasing number of business owners have got in touch with us to have conversations about business exits,” she said.
Of those owners currently looking towards a business exit, family succession was found to be the most popular strategy, the research showed.
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Hayward added: “Given the most popular exit strategy vehicle is family succession, there is an added urgency for many business owners to get their tax affairs in order ahead of the budget.
“Speculation is rife that the chancellor will curtail business relief which can help to soften burdensome IHT liabilities and we have had conversations with many business owners who want to fast-track succession plans while this valuable relief is still available.”
Separate research also pointed to the impact of fears around potential tax changes in the budget.
Bestinvest, which is part of Evelyn Partners, noted an increase in the savers looking to the Bed and ISA method to shield their investments from a potential tax raid.
Bed and ISA is a process that allows savers to sell investments held in a taxable environment and repurchase them within a stocks and shares individual savings account (ISA).
Bestinvest found that the number of Bed & ISA instructions given by investors on its platform to effectively start these transactions had risen by 25% since Labour secured its landslide victory in the UK general election on 5 July, versus the same period last year.
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