What a Labour government would mean for UK entrepreneurs

Thu, 05 Dec 2019 | BUSINESS NEWS

Private business mergers and acquisitions expert Sue Green of Watersheds explains how a Jeremy Corbyn Labour Government would impact SME owners and entrepreneurs who are planning a sale, succession or retirement during the term of the next Government.

Sue Green says: “There is a distinct nervousness in the air right now amongst private business owners who are thinking about their exit plans.

“Since 2008 those selling shares in private companies, often the business that they or their family have spent a lifetime building, have paid tax on any capital gain on the sale of their business at a preferential rate of 10% tax under the Entrepreneur’s Relief provisions. 

“This has been seen by many as an incentive and reward to those who start and run a business, creating employment and investment, often taking substantial personal risk and responsibility along the way.

“Successive governments have tinkered around the edges of Entrepreneur’s Relief, closing loopholes and tightening the criteria to ensure the system isn’t abused, and the relief is only available to genuine business owners on genuine sales.  But none has, thus far, attempted a wholesale review of this relief.

“Under a Corbyn-led Labour government, this would likely change.  Alongside an eye watering array of commitments for increased public spending and nationalisation sits a commitment to “end the unfairness that sees income from wealth taxed at lower rates than income from work” and to “reform the inefficient system of tax reliefs”.  “Within a month of taking office, a review of all tax reliefs currently in operation will be undertaken, with reports and recommendations after six months. Whilst there is no specific mention of Entrepreneur’s Relief (ER), it is widely assumed that it will come under very close scrutiny as part of that review. “

So, what could the impact be on business owners who are thinking about retiring and selling
their business? 
Sue warns “A simple removal of ER, with gains falling into the current capital gains tax (CGT) regime would double the tax burden on business owners when they sell.  If CGT were to be taxed as the top slice of income tax, as it was in the past, this could see tax rates for those who are selling increase five- fold from 10% to an eye-popping 50% of the value of the business!
“So if a business was sold for £1million the tax will be £100,000. Under Chancellor John McDonnell it is likely to be £500,000 tax pretty early in the government’s term, and who knows where tax will get to as spending plans get under way." “What will business owners do?  The prospect of paying 50% tax on their life’s work won’t be
an attractive one, but options are limited.

“Some will, no doubt, hope to achieve a higher sale price for the business to compensate for the increased tax rate.  But the market determines value; just because HMRC are taking a larger share of your gain doesn’t make the business’ value increase.  “Others may simply decide that they would prefer to shut the business rather than hand over half of their cash.  But the reality is that any surplus cash arising from such an exercise will be significantly less than would have been achieved from a sale as a going concern, and will likely still be taxed in the same way.  
“Perhaps there will be a return to trying to pass the business to the next generation (they would be inheriting the cash in any case, so why not inherit the business).  Sadly, well-educated offspring don’t always aspire to running the family business and taking over from Mum and Dad; they may want to become Doctors, Bankers, Lawyers or Social Media Influencers instead! 
“Passing the business to the kids also doesn’t help generate the cash the parents are probably hoping for so they can enjoy the retirement plans that perhaps inspired them to make the sacrifices it takes to start and grow a business.

“Whilst clever accountants and lawyers will hurriedly scour the legislation for loopholes, the General Anti Avoidance Rule and the cost of such advice will scupper the hopes of smaller or family-owned businesses.  They will have little option but to pay the tax and plan for a more frugal retirement.”


Share this article



Latest Businesses for Sale

Chemical Engineering Solutions Provider
Lancashire, North West, UK

Manufactures thermoplastic, fluoropolymer lined steel and GRP composite equipment for clients throughout the UK and internationally. Utilises a number of unique manufacturing techniques to ensure its clients receive a cost-effective, reliable solutio...

Asking Price: Offers Invited
Turnover: £1,790,225

LEASEHOLD


High End Sewing Machines Retailer
Nottinghamshire, East Midlands, UK

Flagship retail store specialising in the highest-end brand of sewing machines. Loyal and affluent clientele coming from all over the UK (and overseas). This business has been a leader in the field for 24 years. The sewing machine market is booming,...

Asking Price: £350,000
Turnover: £700,000

LEASEHOLD


Timber Frame Manufacturer
UK Wide

Designs fabricates & erects timber frames from sustainably sourced materials for both developers & private clients. For all clients comprehensive CAD drawings are produced frames are built off site in the company's factory & erected by a skilled team...

Asking Price: Offers Invited
Turnover: £8,814,696


View more businesses for sale

News Search

Latest News

 
02
 
Jul
 

Benchmark Holdings secures sale of veterinary business | BUSINESS SALE

Sheffield-headquartered aquaculture health, nutrition and ge...

 
01
 
Jul
 

TM Lewin to close all UK stores in pre-pack administration | ADMINISTRATION

Shirtmaker TM Lewin will close all 66 of its UK stores as pa...

 
30
 
Jun
 

New Look mulls pre-pack administration | ADMINISTRATION

Fashion retailer New Look has warned landlords that it may l...

Free guide: 10 Biggest Buyer Mistakes

Sign up to receive our acquisition alert emails to get your FREE guide

Email


Related News

 
03
 
Sep
 

OVM takes over NHS-supplier Therapy Equipment Ltd | BUSINESS SALE

Business growth specialists Owner Venture Managers (OVM) has...

 
06
 
Oct
 

RTS undergoes successful MBO | MBO/MBI

Automotive training agency RTS has been acquired by its mana...

 
17
 
Mar
 

Sale completed of refrigerated display equipment manufacturer | BUSINESS SALE

The sale of a refrigerated display equipment manufacturer ha...

Want access to the latest businesses for sale?

Business Sale Report is your complete solution to finding great acquisition opportunities.

Join today to receive:

  • Comprehensive range of businesses for sale
  • Make direct contact with business sellers or their intermediaries
  • Access to all UK administrations, liquidations and winding-up petitions
  • Daily email alerts for the latest businesses for sale & distressed notifications
  • Business Sale Report publication posted to you every month
  • Advertise your acquisition requirements on our "business wanted" section

All this and much more, including the latest M&A news and exclusive resources