The UK Government led by the Labour leader Kier Starmer has already informed everyone that the country’s purse is not only empty but the country credit cards have been maxed and we have borrowed way too much money.  We need to look at paying back some of this debt, whilst also investing into the future infrasturcture needed to promote growth.

The idea of being able to cut our way out of the national debt has been shown as a false economy and the ideological economic polices of the last 14 years are being put to bed. But to do this they are looking at a lot of options some of which will have a direct impact to business owners who may be looking to sell their business in the near future.

Increased Capital Gains Tax Rates

One of the options for the government is to increase the amount of Capital Gains Tax which will be charged, one suggestion is to increase the taxation rate in line with Income Tax which could see the rate increasing to approximately 40% for higher tax rate players.

The impact of this to business sellers is that you could see a massive increase in tax when selling your business.  It is unknown how the government will deal with things like Business Asset Disposal Relief, which at the moment can reduce your Capital Gains Tax liability down to just 10%. 

Welath Tax

Another option being mooted by analysts is the introduction of a new wealth tax on poeple with assets above a certain amount. this could be set reasonably high to remove the majority of the population out of the liability, and at the time of writing it has not even been confirmed but what would be the impact it is set at 0.5% of assets above £1,000,000?

Wealth Taxes are levied on individuals who have any financial assets, this can include Cash, Investments, Businesses, Property, or Collectable items.  The tax is levied on an annual basis and the valuation of the assets would need to therefore be calculation. 

If you own a business worth £1,000,000 then you would have an anual liability of £5,000 a year.  But you would also be liable for all other assets you hold, so your house, any investments like other shares that you own or any collectable items. This could start to increase the total valuation of your assets, and therefore increase your liability.

Windfall Tax

The Government may create a windfall tax structure designed to tax businesses who achive a one-off increase in profits, due to an unforeseen circumstance, although this tax would probably not affect many businesses especially in the SME area.

Impact to Business Sellers

When selling your business, the main expense as a seller is the Capital Gains Tax which is calculated based upon your own personal circumstances and based on the tax rate of which you pay income tax, the latest information can be found on the Government website: Capital Gains Tax – GOV.UK (www.gov.uk)

For some sellers they are able to claim Business Asset Disposal Relief (BADR), which reduces the rate of Capital Gains tax to 10% but there are rules and lifetime limitations for the use of this relief.   If you do not qualify for BADR, then you will pay the full Capital Gains Tax rate, 

For a business worth £1,000,000 you will have a tax bill of up to £200,000 at the moment, but if this increases to 40% this could see a bill of £400,000 on the sale of your business.

As Capital Gains Tax is due on the sale of your business this would need to be paid as part of the initial down payment for the business and this could have an impact of the buyers of the business where they will need to raise at least this amount to make the sale worthwhile to the seller.

This may make some owners decide to keep their business, however if the introduction of a Wealth Tax happens that same business is going to start costing you at least £5,000 a year if the rate is set to 0.5% of the value. 

At the moment 80% of businesses that are places on the market for sale fail to find a buyer. These changes are likely to cause some businesses to become unsellable and therefore increasing the chances of a business not selling.

How can we help you sell your business?

At Mobius Associates we look at things differently, using our unique proposition we will help you to prepare your business to be sold to your employees using an Employee Owned Trust, this mechanism allows you to reduce your capital gains tax liability to zero percent for the proportion you sell to the EOT.

There are also other benefits of Employee Ownership which we have discussed here;

What are Employee Owned Trusts

As Business Advisors we can also work with you and our partners to ensure that you are able to successfully transition away from your business whilst securing it’s future regardless of any changes that the UK Government can bring in.

If you are tired of running your business, but also want to secure your business for your employees and give yourself the retirement you deserve then contact us here, or arrange a meeting with the team