OK, so the budget is in; either you were in the camp that thought, “That wasn’t as bad as we thought,” or you were, “I should have sold my business six months ago!”
As you probably know, the UK Autumn Budget of October 2024 introduced several tax changes that significantly impact business owners contemplating the sale of their businesses within the next three years. Understanding these changes and implementing strategic measures can help maximise the value of your business during this period. At least the BADR is going up in phases, unlike the CGT.
Key Tax Changes Affecting Business Sales
Capital Gains Tax (CGT) Rate Increases: Effective from 30 October 2024, the lower CGT rate has risen from 10% to 18% and the higher rate from 20% to 24%. This adjustment affects the taxation of profits realised from the sale of business assets, potentially reducing net proceeds for sellers.
Business Asset Disposal Relief (BADR) Modifications: Previously, qualifying business sales benefited from a reduced CGT rate of 10% on gains up to £1 million. Under the new rules, the BADR rate will increase to 14% from 6 April 2025 and align with the main lower CGT rate of 18% from 6 April 2026. This phased increase necessitates careful planning for those aiming to utilise BADR.
To optimise the sale value of your business amidst these tax changes, consider the following strategies:
Accelerate Sale Plans: Given the impending increases in BADR rates, completing the sale before 6 April 2025 could secure a lower tax rate of 10% on qualifying gains. This requires prompt action to identify buyers and finalise transactions within the available timeframe.
Enhance Financial Performance: Prospective buyers are attracted to businesses demonstrating strong and consistent financial performance. Focus on improving profitability, managing expenses, and ensuring accurate financial records to present a compelling case to potential buyers.
Streamline Operations: Efficient and well-documented business processes add value by reducing operational risks. Implement standard operating procedures, invest in staff training, and ensure that the business can operate independently of the current owner.
Diversify Revenue Streams: A business with multiple income sources is more resilient and appealing to buyers. Explore opportunities to expand product lines or services, enter new markets, or develop strategic partnerships to broaden your revenue base.
Strengthen Customer Relationships: A loyal and diverse customer base enhances business stability. Implement customer retention strategies, gather testimonials, and demonstrate a strong market position to potential buyers.
Prepare Comprehensive Documentation: Organised and transparent documentation, including financial statements, legal contracts, and operational manuals, facilitates due diligence and instills confidence in buyers. Ensure all records are up-to-date and readily accessible.
Seek Professional Advice: Engage with financial advisors, tax specialists, and business brokers to navigate the complexities of the sale process and tax implications. Professional guidance can help structure the sale to maximise after-tax proceeds.
