By now most of us are very familiar with the word ‘budget’ which has been the buzzword of the past month. As a business owner, there are many key takeaways from Reeve’s announcement that could impact you if you are considering selling your business in the near future.
Firstly, Capital Gains Tax (CGT) increased overnight, which was largely expected, and has increased for both rates that are payable. CGT is the tax payable on profits from selling or disposing of assets. The lower rate of CGT has gone up to 18% from 10% and the higher rate payable is now 24% (previously 18%). This increase applies to any gain, so includes the sale of shares or assets. This is obviously a substantial increase, albeit a lower increase than the rumour mill had predicted, but still increases a business owner’s tax liability quite substantially. Unfortunately, there was no period for this to come into effect, and it was an immediate change meaning there is not the opportunity to dispose of your assets or business to avoid this increased CGT liability.
However, with Business Asset Disposal Relief (BADR) there is more time to be able to benefit from the previous rates before the increase comes into play. Again, it was anticipated that these rates may increase. It is important to note that the lifetime allowance for BADR is to remain at £1 million until 5th April 2025. This is particularly advantageous if you were thinking of exiting your business within the next year. At present, the current BADR rate is 10% but it is set to increase to 14% from the 6th of April 2025, and then increases again to 18% from 6th April 2026. Unfortunately, for people with a 5 or even 10 year plan, this is not going to be beneficial, but for those of you that were looking to sell in the more imminent future, your personal pay out following a sale could be significantly more if you sell prior to either of these deadlines. The deadline being the 6th of April 2025 allows businesses plenty of time to go through the process of an exit without any need to rush, allowing the process to still be carried out effectively.
On the other side, if you are thinking of purchasing a business, there have been no changes for buyers akin to those for sellers. However, there have been certain changes announced in the budget that are things a buyer should be aware of, especially when conducting any due diligence on a prospective business. These are namely the increase to National Insurance contributions for employers, the obligation of mandatory reporting of any benefits via payroll and national minimum wage increases. These all contribute to obligations you want to ensure a business has adhered to and increase the outgoings of a business.
In the past couple of weeks, we have noticed an increase in enquiries regarding an exit.. If this is something you would like to discuss and get more information on, please feel free to get in touch via telephone on 01273 447 065 or email to [email protected] or [email protected] for an initial obligation-free meeting.
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