Don’t Let The Tax Tail Wag The Dog!

So the budget has come and gone and no action taken on Business Asset Disposal Relief (BADR, formerly known as Entrepreneurs Relief). Welcome news, of course, for anyone currently in a sale process.

That said, public views toward taxation have been shifting, with Ed Sheeran recently being lauded for paying £28m in personal tax – the highest of any UK musician (I guess he still has plenty left!). Having said this, one must hope the Government does not forget the message of the Laffer Curve (that tax receipts can actually fall if tax rates are too high) and sets rates in future budgets that do not adversely affect behaviour.

We have recently seen different approaches from clients to the future tax situation. Some, though keen to maximise their after-tax consideration, have just accepted that the landscape might change and will pay the tax due at the time. Others have suggested that they would prefer to hold off commencing a sale process until they know what is happening to Capital Gains Tax and BADR.

Which approach is correct?

We strongly believe that taxation considerations are a small element of the sale process and should not dictate timing. That does not mean taxation should not be considered at all – for example, through sensible structuring and advice or where a current deal can be quickly completed in advance of a change in the tax regime – but it is rarely the main consideration, nor should it be.

Delaying or accelerating a business sale to try to outwit the Chancellor seems to us a dangerous strategy. Build the value of the business further by all means, take taxation advice for sure, but remember that the difference between a successful or unsuccessful sale will be governed by the many other factors in play.