It’s confirmed. Capital Gains Tax (CGT) payable is going up on business owners selling their businesses.
Key points:
24% Higher Rate with immediate effect.
10% rate of CGT that applies to Business Asset Disposal Relief (BADR), i.e. on the first £1,000,000 capital gain per qualifying shareholder, on business sale transactions completing before 5thApril 2025
14% rate of CGT that applies to BADR on transactions completing on or after 6th April 2025
18% rate of CGT that applies to BADR on transactions completing on or after 6th April 2026
There’s no spinning that this is going to be anything other than unwelcome news for business owners, their families and investors. But let’s set aside the politics and focus on how to mitigate the impact of these changes:
Complete your sale by 5th April 2025
Yes, it’s possible. It will be a lot easier if you are already prepared with a retained advisor, Information Memorandum, Target Acquirer list, robust financial reporting, etc, etc. However if you commence your market process immediately you stand a reasonable chance of success. You will need firm offers on the table by January 2025 and an excellent team of Corporate Finance / M&A advisors and a strong Corporate Lawyer on your side. Do not waste a day.
Secure an increased valuation
You will need to give bidders a very good reason to increase their valuation to counteract a tax increase that, frankly, they will not see as their problem. The good news is that a professional M&A advisor will be able to generate that reason. If they tell you they can’t, then either a) fire them or b) don’t hire them in the first place. They should have multiple strategies ready to go. Symmetry, for instance, consistently achieve uplifts between opening bids and transacting Enterprise Values in the range of 30% to 140% (yes, you read that right). Well in excess of an 8% tax change.
Optimise your Equity Value
The difference between Enterprise Value & Equity Value is technical, but crucial. This is the determination of how much surplus cash and, critically, “cash-like items” are added to your sale proceeds. Your advisor should be able to explain to you in specific detail what techniques they will use to maximise your net sale proceeds, targeting a positive result in excess of the tax differential of the total transaction value. Again, if they say they can’t either fire or decline to hire them.
Reach out to us if you would like a no obligation conversation on what specific strategies will work for you and your business sale.
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