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Will 2020 see the end of Tax Relief for business owners?

Will 2020 see the end of Tax Relief for business owners?

Fiscal and Monetary Policy: how do these currently affect M&A

Selling a business, is not to dissimilar to starting a business in terms of thought, decision and commitment. When selling a business, a lot of control lies in the hands of the shareholders, and relationships with key advisors along the journey. However, there are other Government contributors that affect the broader landscape of buying or selling a business.

On a daily basis, Starling Corporate deals with a vast range of buyers and buyer types. We could be liaising with a family, who are considering their first private purchase. Where at the same time, we could be working directly with an oversees investor alongside their portfolio development strategy.

It often asked, “what will I walk away with once my business sells?”

There are far too many variables to be able to answer this question, and whilst we are able to guide our clients what to expect from every stem of the process. There are current Government and Central Bank policies that have a direct impact on the M&A market.

Monetary variables in M&A

With low interest rates driving liquidity, leading economists are reporting increased levels of investment and lower levels of saving in the UK.

The ‘Base Rate’ is a monetary term for the Bank of England’s official borrowing rate. This influences what borrowers pay, and what savers earn. The current Base Rate is currently set at 0.75%, having risen from an all-time low of 0.5% in August 2018. Whilst this suggests a possible upward future trend for the rate; the last time the figure was above 1% was in 2009. Ultimately, what this means is that liquid cash is not worth as much as ir previously was in a savings account; making an investment or business acquisition a lot more attractive as a return on investment.

To compliment that, the cost of borrowing is low and lenders are again willing to lend. Starling Corporate has a plethora of strong trading relationship with financial sponsors, investors and banks to assist any client with their finance or borrowing needs.

We feel that the above is contributing to hugely prosperous market conditions. To discuss the macroeconomic environment and its potential effect on your business, “speak to an expert here”

www.companyvalue.co.uk allows business owners to value to understand what their business may be worth in current conditions and is recommended by Starling Corporate.

Fiscal Values in M&A

Starling Corporate have a superb team of researchers and analysts who are able to identify possible changes or influences in the Fiscal or Tax policy. We are able to guide and inform clients on how to sell their business to utilise and benefit from all market conditions, good or bad.

Entrepreneurs Tax Relief (ETR) is a policy that was introduced in the UK in the budget of 2011. In essence, this allowed shareholders to claim relief on the Capital Gains Tax (GCT) on the sale of their business.

Currently shareholders are permitted to receive the first £11,300 tax free and then excess profits are taxed at the rate of 20%. This rate already represents a pretty good rate when compared to other tax rates. The standard rate of CGT of 20% represents a much better rate than if the gain was treated as income and taxed at 20%, 40% and 45%. Especially given that Starling Corporate will often advise clients on seven and eight figure transaction values.

If our client’s business sale qualifies for Entrepreneurs relief however, then the standard rate of CGT (20%) is halved to just 10%.

Currently Entrepreneurs relief has a lifetime allowance of £10m which means that out of £10m, only £1m will be the CGT spend, saving £1m in this example with current Fiscal conditions.

‘CHANCELLOR PLANS TO SCRAP TAX RELEIF FOR ENTREPRENEURS’ – The Financial Times, 02/03/2020

The subject of CGT and relief is extremely relevant at the moment, and something that economists and financial experts are discussing. Entrepreneurs Tax Relief was introduced as a temporary stimulant to boost the economy. Like other factors, this holds no guarantee to deliver the desired impact, nor does it mean that it is a permanent or even long term incentive. 

 

Rishi Sunak is coming under pressure from businessmen not to cut the entrepreneurs’ tax relief in his budget on March 11

PETER NICHOLLS/REUTERS

Entrepreneurs and an employers’ group have demanded that Rishi Sunak reconsiders an “incredibly damaging” plan to scrap a relief that allows people to cut their tax bills when they sell their companies

  • The Times 2020

With this in mind, there has never been a more appropriate time to release and locked in value for your business. With interest rates and tax rates being in favour of the business owner and entrepreneur, we advise arranging a no obligation consultation to find out your options.

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