Capital Gains Tax change - surge in business exits expected

Following on from the Pre-Budget report, when an increased flat 18% capital gains tax rate was announced, a leading consultancy firm has predicted a surge in the number of business owners selling up before the new rules take effect on 6th April 2008.

Deloitte, the business advisory firm, expects many business owners and shareholders to accelerate any plans they may have had to sell up and therefore avoid paying 80% more tax on their exit proceeds (assuming they would have been paying 10% under the taper relief regime).

Paul Zimmerman, Corporate Finance Partner at Deloitte, said:

“We expect to see a substantial increase in the volume of deal activity over the coming months as business owners and private equity investors bring forward disposal or restructuring plans to avoid the higher costs that will be incurred from April.

“Owners and investors who had planned to sell their interests in a business in a year or two’s time are likely to accelerate their plans and sell now, rather than lose an additional 8% in six months time."

"However, it remains vital to properly plan and effectively execute a sale to maximise value, and get the right price. Without this, a rushed disposal could mean the seller misses out on a whole lot more than the 8% that CGT changes threaten to erode.”

Andy Newsome, Head of M&A Tax at Deloitte, added:

“To date, the capital gains tax rate of 10% has been seen as an acceptable cost on a business exit for many entrepreneurs. Clearly, the near doubling to 18% will impact the decision whether or not to sell. We expect to see a short term flurry of activity as business owners and private equity investors incorporate the tax benefit of selling before next April into their exit plans.”