Business owners who are considering realising their assets before the next general election in anticipation of potential Capital Gains Tax (CGT) increases are being urged to act promptly or miss the boat.

Autumn next year is being seen as the most likely time for the next election, which must be held by January 2025, and there are suspicions that CGT might rise whichever political party is triumphant.

David Simmons, Corporate Finance Director at Top 10 accountancy firm Azets, believes raising CGT would be an ‘easy’ tax raising option for the next government and so anyone looking to lock in the current 20% rate when cashing out must begin the lengthy process almost immediately.

He said: “The rationale is that whoever forms the next government will need to raise funds to fulfil manifesto commitments. We remain in deficit, but with growth stimuli plans seemingly in short supply and spending cuts not mentioned, it looks like tax increases, with CGT being a likely one."

“Politically, it is a relatively easy tax to raise as it doesn’t directly impact the majority of the population. People may even support the idea of higher tax on ‘rich people owning companies’ without realising the potential knock-on effects."

“The risks that business owners will have generally gone through to set businesses up in the first place and the early hardships they have endured rarely get mentioned. This is a shame as, ultimately, we want companies to grow and entrepreneurs to take risks."

“Therefore, if you increase tax on those who own businesses then they have less incentive to either start them in the first place or grow them. That in turn has a direct impact on the economy, therefore on growth and, ultimately, the person on the street."

“We are not talking FTSE 100 Index companies here, but owner-managed businesses, the SMEs, small and medium-sized enterprises with up 249 employees which make up 99.9% of UK private sector businesses.”

David said tax as a share of GDP was the highest it had been for more than 50 years but CGT remained relatively low at 20% for most assets (with a 10% rate on first million pounds for most trading businesses), especially when compared to 1988 to 2008 when it was equalised with the top rate of Income Tax.

However, raising CGT – worth around £16m to the economy per annum, or approximately 1.7% of tax receipts in the last financial year – would not necessarily increase tax yields as the crystallisation of assets tend to be one-off events.

Manchester-based David, who has 25 years’ corporate finance experience and is a valued member of Azets’ national CF team, says there is increasing noise surrounding the next election.

He added: “In almost every conversation I have with businesses owners about succession or exit options they are bringing up the election as a relevant factor."

“My role is to get across the urgency here in that anyone contemplating a full or partial exit needs to be aware that getting a deal across the line from scratch can take up to a year. Therefore, if a business owner is considering this, it is something that needs to be decided sooner rather than later."

“You want to be talking to an advisor now and pressing the button in probably January at the very latest to crystalise some or all of your shareholder value and lock in CGT at the current rate or you risk capital gains tax potentially going up."

“This is not something to put on the back burner and think about next year, because you basically won’t have time to do it. There is an immense amount of work to do because no business is ever perfectly ready for sale."

“You have got to prep the business for sale to start with, prep the documentation – which includes researching who might want to buy you or invest – then approach them, provide them with the information, go through various meetings, get offers on the table, negotiate those offers, get more information, sign heads of terms, go through due diligence, go through legals – and, if you can get through all that, only then will you actually complete a deal.

“If everything goes exceedingly well and you are pretty much ready now, circa six months is the quickest you are looking at, but nine to 12 is typical. If you have had an approach, then you can potentially do it in four to six months because you are starting halfway down the track.

“Buyers tend to do a lot of due diligence these days as well and that takes a long time – and if it is a private equity buyer it can take even longer.”

David said most business sales that he works on were due to retirement and that quite a few business owners may have postponed their exit because of Brexit and then got hit by covid – leaving a wave now reaching a point when cash out options were being seriously considered.

With the economy causing great concern and any new government inheriting a poor situation, any CGT increases are likely to remain a concern for the next election cycle.

“Should CGT be increased, anyone not acting on a sale now will either face paying more tax – and may well be comfortable about this – or will need to hold off for some years with fingers crossed that CGT might eventually go back down again. However, five years can be a long time when it comes to retirement sales.”

David has advised business owners to seek professional advice to discuss and consider options and discover what might be available – a full or partial exit, trade sale, private equity or some other form of realisation.