As a business owner looking to sell the worst has been confirmed by Rishi Sunak in his Budget – or has it?
Before the Budget, it was rumoured that Entrepreneurs’ Relief was going to be abolished completely, yet instead it has been reduced from £10m to £1m.
Previously, Entrepreneurs’ Relief reduced the rate of capital gains tax (CGT) from 20% to 10% on the first £10m of gains from disposals of qualifying business assets, with that being reduced to £1m in the Budget. Following this, the higher rate is 20%, which is still a lot less than personal tax. It’s also a lot less than if a seller sold the assets of a business, as they could pay 19% corporation tax, followed by up to 38.1% dividend tax.
It’s also worth remembering that Entrepreneurs' Relief is available to individuals, and not companies. Therefore, assuming qualification for Entrepreneurs’ Relief, each shareholder will only be taxed the lower CGT rate on the first £1m – not the company as a whole.
As a result, Sunak has said 80 per cent of small businesses would be unaffected by the changes as he believes risk-taking by entrepreneurs should be encouraged – but did say he listened to representations for the tax break to be scrapped completely, hence the cut.
Having said that, if the cut in Entrepreneurs’ Relief does still affect your business – do not worry. Multiples paid will naturally increase as sellers will need an added incentive to sell, meaning that buyers will have to face bridging the gap or lose the opportunity to acquire good businesses. And if you find a good corporate finance adviser, they will be able to adjust and extract value from the business prior to sale.
WE ARE READY WHEN YOU ARE
Call Benchmark International today if you are interested in an exit or growth strategy or if you are interested in acquiring.
Europe: Michael Lawrie at +44 (0) 161 359 4400 / Enquiries@BenchmarkIntl.com
Americas: Sam Smoot at +1 813 898 2350 / Smoot@BenchmarkIntl.com
Africa: Anthony McCardle at +27 (0) 21 300 2055 / McCardle@BenchmarkIntl.com
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Benchmark International’s global offices provide business owners in the middle market and lower middle market with creative, value-maximising solutions for growing and exiting their businesses. To date, Benchmark International has handled engagements in excess of $6B across 30 industries worldwide. With decades of global M&A experience, Benchmark International’s deal teams, working from 13 offices across the world, have assisted hundreds of owners with achieving their personal objectives and ensuring the continued growth of their businesses.