Reform to CGT following general election and the potential impact on business sales

With the triple lock pledges of both main parties not to increase income tax, national insurance or VAT, it seems reasonable to speculate that whichever party that wins the election may be left with little alternative but to hike or reform other taxes in order to meet their public spending objectives. Any potential reform to Capital Gains Tax (CGT) will make entrepreneurs nervous, and potentially inform decisions on exit strategies by business owners. This might in turn have a significant impact on the numbers of acquisitions and disposals – in particular in the SME/ owner managed sector. Professional services such as accountancy and law firms could also have to take on a significant hit to their revenues if there is a market slump in purchase and sale of businesses. 

In 2020 Entrepreneur’s Relief (ER) evolved into Business Asset Disposal Relief (BADR), so that business owners who paid 10% CGT on sale proceeds up to £10 million under the old ER regime now pay 10% on sale proceeds up to £1 million with 20% on anything over that figure (subject to hitting other specific requirements of BADR). 

It would be unfortunate for entrepreneurs if any reforms to CGT came through an emergency budget shortly after the general election, and it may be more likely that any initial changes to CGT would come in a budget this autumn or in some future budget during the next administration. If any reforms to CGT were made in an autumn budget they might come into force from that date or,  perhaps  from the beginning of the next tax year, from 6 April 2025. For any business owners considering an exit and disposing of their business, it may be prudent to watch this space and consider whether the time is now.

Capital gains tax also is not a huge revenue raiser. The Office for Budget Responsibility expects CGT to raise £15.2bn in the year to next March. That is just 1.3 per cent of all receipts. Labour would need to decide whether the gain was worth the pain of radical reform.

https://www.ft.com/content/fc94131c-745b-4f32-83e9-f586717b3062