As the dust settles after the Autumn 2024 Budget, we reflect on the key considerations for any business owner thinking about exiting their business. If you’re actively thinking about starting the process soon or planning for an exit within the next 5 years, it’s important to understand the facts and how they relate to your individual situation.
Here’s a clear, straightforward look at the changes that matter most for business owners planning their exit strategy.
Business Asset Disposal Relief (BADR)
If you’re an employee or director in an unlisted business, BADR (formerly known as Entrepreneurs Relief) offers reduced capital gains tax on lifetime gains up to £1 million. The good news? BADR is here to stay. However, the tax rate will rise:
- From 10% to 14% for sales on or after April 6, 2025
- From 14% to 18% for sales on or after April 6, 2026
For those selling after April 2026, this increase could mean up to £80,000 more in taxes. Similarly, the rate for Investors’ Relief is increasing in line with BADR, and the lifetime limit for this relief will be reduced from £10 million to £1 million for sales made after October 30, 2024.
These changes might lead some business owners to accelerate their sale plans to take advantage of lower rates now. Buyers, too, should factor in these changes, as they may affect future gains on resale.
Selling to Employee Ownership Trusts (EOTs)
Selling to an Employee Ownership Trust remains an appealing route for business owners looking to create an employee-owned business. EOTs come with capital gains tax exemptions if specific conditions are met, and recent updates are focused on refining these processes.
Starting October 30, 2024, here’s what’s new:
- No Retained Control – Former owners can no longer keep control of the company after selling to an EOT.
- Trustee Residency – EOT trustees must now be UK residents.
- Tax-Free Contributions – Contributions from a company to an EOT to repay former owners won’t be taxed as distributions.
- Extended CGT Relief Withdrawal Period – The timeline for withdrawing CGT relief is extended to four years after the disposal’s tax year.
- Market-Value Assurance – EOT trustees must take reasonable steps to ensure the sale price is at market value.
- Reporting Requirements – Sellers must provide details on sale proceeds and employee numbers when claiming CGT relief, starting for sales after April 5, 2024.
- Director Bonuses – All EOTs, no matter when they were set up, can now exclude directors from receiving the annual tax-free bonus of up to £3,600.
These updates help to streamline and secure the EOT process, making it a reliable option for many owners seeking a tax-efficient exit.
Capital Gains Tax Changes
Capital Gains Tax (CGT) rates have risen across the board as of October 30:
- Standard Rate – Increased from 10% to 18%
- Higher Rate – Increased from 20% to 24%
- Trustees and Personal Representatives – Now subject to the new 24% main rate
This change aligns CGT on most assets with residential property rates, though property owners may breathe a sigh of relief that rates there remain the same.
Prepare For a Successful Exit Post Budget
If you are planning an exit, there are 3 key things you can do to navigate upcoming changes and position yourself for a successful exit:
Complete Your Sale by April 5, 2025 – If you are thinking about an exit plan, acting now and seeking specialist advice to support the deal process will give you a reasonable shot at closing a deal before the April deadline. Your goal is to have firm offers by January 2025, backed by an outstanding team of Corporate Finance/M&A advisors and a skilled Corporate Lawyer. Every day counts so get started!
Boost Your Valuation – To overcome any potential tax impact, you’ll need to give potential buyers a compelling reason to raise their offer. Here’s where a seasoned M&A advisor can make a big difference, using tailored strategies to drive up the value.
Maximise Your Equity Value – The difference between Enterprise Value and Equity Value is nuanced but critical. It determines how much surplus cash, and “cash-like items” will be added to your final proceeds. Don’t leave money on the table – with the right planning and advisors by your side, you can turn these changes into an opportunity to secure the best possible result for you and your business.
How We Can Help
While the budget introduces higher rates and tighter rules, careful planning can help you achieve the best outcome from a sale. Whether you’re ready to sell now or planning ahead, why not book a business exit review with The MGroup Corporate Finance to explore your options? Contact Geoff Pinder (07717 874357) or Nick Lankester (07760 270728) for a confidential discussion.