Business owners look to exit over capital gains tax reforms

Entrepreneurs and small business owners are thinking of selling up earlier than they had planned because of worries over possible tax changes.

Rishi Sunak is considering an overhaul of capital gains tax as he tries to find ways to balance the books in the wake of the coronavirus pandemic.

The tax is levied on the profits made when an asset, such as a business, that has increased in value is sold. Typically, business owners are charged 20 per cent on the profits they make from selling on their companies, although entrepreneurs’ relief means that they have to pay only 10 per cent on the first £1 million over the course of their lifetime. The threshold used to be £10 million, but the chancellor cut back that figure in March.

So far, the government has provided little detail as to what, if anything, Mr Sunak might announce in the autumn budget, which is expected in October. However, the review has unnerved some business owners, who are worried that any tax rises or scrapping of the relief would put a dent in what, for many, is their retirement fund.

“[The review] has prompted a number of entrepreneurs to call me and say that they don’t want to take that risk,” Lord Leigh of Hurley, co-founder of Cavendish Corporate Finance, which advises on mergers and acquisitions, said. “They want to capitalise a bit earlier than they had otherwise planned if they possibly can.”

Chris Etherington, a private client tax partner at RSM, the accounting group, also reported a rise in the number of clients enquiring about bringing forward the sales process. He thinks that most business owners would begrudgingly put up with a small tax rise, but warned that a more “significant” one would “too bitter a pill for some of them to swallow . . . I’ve already had people saying to me that if capital gains tax went up in line with income tax, then they would want to leave the country [for tax purposes].”

Craig Beaumont, at the Federation of Small Businesses, was “not surprised” to hear that entrepreneurs were looking to exit before changes came into force and he called on Mr Sunak to prioritise “turbocharging the economy” rather than increasing his tax-take.

Lord Leigh said: “Mr Sunak needs to encourage entrepreneurs to get us out of this mess. Entrepreneurs take risks, people with salaries don’t. If you want someone to start a business, you’ve got to give them an incentive to do so.”