In the ever-changing world of business, finance and politics, the prospect of a 2024 general election has sparked heightened concerns among some owners of lettings businesses, particularly when it comes to the tax treatment of selling your business. The activity we saw in 2023 shows a notable surge in business transactions in this sector, some of which was down to the anticipation of a potential change in government. As the possibility looms, it is important for business owners to understand the potential impact on Capital Gains Tax (CGT) and the things you should be thinking about now to prepare yourself.
Presently, CGT on business sales up to £1 million is levied at a relatively moderate rate of 10%. However, there is speculation that some political parties may choose to impose a substantial increase of up to 45% to address fiscal gaps. Because such a move wouldn’t directly impact the majority of UK taxpayers, it could serve as a sneaky manoeuvre for a political party trying to balance the books without impacting its more traditional supporter base.
The anxiety among business owners stems from the potential repercussions of a sharp increase in CGT. A 45% rate could prove challenging for the profitability of UK businesses, and have an impact on employment levels. However, it is essential to approach such speculation with a degree of scepticism. A hike of this magnitude appears highly improbable due to the adverse consequences it would pose for the overall economic landscape.
Nonetheless, the mere possibility of an increase in CGT is a consideration for business owners contemplating a sale in the coming years. The lead-up to an election typically prompts a surge in political and economic uncertainties, potentially influencing business decisions. For those contemplating a sale within the next five years, the prospect of a change in government might be the thing to encourage them to move quicker.
Recognising that a business sale can take between three and six months to complete, the forthcoming election could serve as the nudge business owners need to get things started sooner rather than later. The inherent uncertainty surrounding potential changes in taxation policies creates a sense of urgency for those looking to navigate the market before any alterations take effect.
Regardless of whether CGT is increased or not, business owners can take some pre-emptive action to mitigate tax implications when preparing their businesses for sale. There are a number of straightforward aspects we suggest looking at, including:
- Reducing Corporation Tax: By making strategic improvements within the business, owners can potentially reduce their overall corporation tax bill, contributing to increased profitability.
- Corporate Structure Optimisation: Exploring the option of separating the business into separate limited companies can provide owners with increased flexibility and a range of options, potentially optimising their tax position.
- Pension Contributions: Contributing to a pension scheme can be a tax-efficient strategy, allowing business owners to secure their financial future while potentially reducing their tax liabilities.
- Green Investments: Purchasing an electric vehicle not only aligns with environmental considerations but may also offer tax incentives, presenting a sustainable and financially prudent option.
Here at Atomic Consultancy, we don’t claim to be tax experts, however we do have access to a team of experienced tax advisors who are more than happy to offer free initial advice.
In conclusion, the potential impact of the 2024 general election on CGT is definitely something which business owners should be thinking about now. While a drastic hike in rates may seem unlikely, the strategic implications for businesses cannot be ignored. It underscores the importance of proactive measures and strategic planning in the face of evolving political and economic landscapes. We are always ready to provide support, insight and guidance, and we can make introductions to our trusted network of skilled accountants and experienced tax specialists for comprehensive advice which is right for your business. For a no-obligation consultation or to discuss a potential business sale in confidence, get in touch with Atomic Consultancy today.