Taper Relief Withdrawal 
Added : 3rd October 2007
The past few years has seen a high level of activity whereby shareholders have taken advantage of favourable regime to minimise the tax which they suffer on the sale of their business. This activity is evidenced by both a high volume of company disposals and the increased use of restructurings to enable business owners to realise at least some of their wealth.
Corporate Finance Partner, Heath Walker, from Leicester Business Advisers to private business Cooper Parry, has commented ‘For those who were considering whether they should be reaping the fruits of their labours, yesterday’s pre budget announcement was hardly good news. Whilst many have been crystallising value at tax rates of only 10%, the lowest rate of capital gains tax that they will be able to achieve from 6 April 2008 is 18%. Although still attractive when compared to income tax, this increased rate will significantly reduce the proceeds from what, in most cases, is a business owner’s most valuable asset.’
‘I have estimated that whether the business is worth £1 million or £10 million now the bottom line is that the owner would need to achieve up to 15% more for the business, if the sale takes place after 5th April 2008, just to enable the entrepreneur to stand in the real terms of what he or she would receive from the sale after paying the increased CGT. Due to the fact that most businesses are valued as a multiple of profits, this would require the business to generate a 15% increase in its profits, which in most cases cannot be safely anticipated.’
Heath is suggesting to the region’s entrepreneurs that those owners, who were already considering when they should unlock their capital value, should view the change as a trigger to action. Even the best run sale process can take six months to complete and, for business owners who are more inclined to realise a part of their asset value through a restructuring, the threat of tightening debt markets must not be overlooked.
Heath concluded ‘The rate increase may have been less of a surprise than the fact that the chancellor has at least decided to give some advance notice. Although such notice is helpful, quick decisions will be required if owners wish to take advantage of the current regime. Without immediate actions, the anticipated flurry of activity between now and April will simply reflect an accelerated completion of those deals which are already in progress.’
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