Changes to Capital Gains Tax: what does the OTS statement tell us?


by Adrian Howells, Director, Corporate Finance

On Wednesday the Office for Tax Simplification (OTS) released their much anticipated review on Capital Gains Tax (CGT), the tax which (amongst other assets too) is levied on business owners when selling their businesses.
 
The OTS made clear their recommendations that the rate of CGT (currently 10% on the first £1 million of lifetime gains - via Entrepreneurs Relief - and 20% thereafter) should be aligned with income tax rates – this represents a potential increase to a 45% tax rate on the disposal of business assets; higher still if income tax rates increase. This is a significant blow to all business owners who have invested time, money and taken substantial risks to build their businesses and accumulate value within their business, often in lieu of pension funding for their retirement and for their family. In addition the OTS has suggested the removal of the Capital Gains Uplift regime, meaning that business assets passing through probate would once more be vulnerable to CGT.
 
It has also been confirmed that the Chancellor is to announce a Spring Budget for March 2021. Given the state of public finances as a result of Government support measures throughout the Coronavirus crisis, it is almost inconceivable that the Chancellor will not be compelled to increases taxes in March. The Government’s track record on CGT is well rehearsed, with the removal of 90% of the lifetime allowances under Entrepreneurs Relief in the March 2020 Budget. Now with the OTS report (commissioned by the Chancellor himself in July) recommending a further assault on CGT, all business owners considering their exit planning should be alive to this situation and formulating their plans in light of it.
 
Our view on market activity 
 
Since the announcement of the OTS review in July, our Corporate Finance team has seen a noticeable uptick in enquiries from business owners looking to secure the wealth they have worked hard to accumulate over the years, by selling or restructuring their businesses before such further CGT changes come into effect. The news that the rates of CGT are being targeted for an increase will likely see a surge in activity as owners look to exit before the March Budget announcements are made.
 
Despite the Coronavirus pandemic, the M&A market remains buoyant and stable – private equity investors continue to be very active and we are seeing activity with trade buyers too on processes we are conducting with both investors and corporates looking to drive growth via acquisitions. We have also noted that, when making offers for businesses, the majority of buyers are sympathetic in pricing deals to the temporary hiatuses in recent trading caused by the pandemic.
 
Get in touch 
 
If you are keen to understand how this news impacts your or a client’s business, we are on hand to help and guide. Get in touch with us about how we can support your plans to preserve hard-earned value and taking advantage of the current CGT regime whilst it still exists.
 
Take a look at our previous article on changes to CGT and how it will impact the business landscape here: https://www.quantuma.com/articlec22f.html?id=b8d628d736f41426b4e7

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