The market price for non-listed firms had been seen by some analysts as out of step with gains on the Stock Exchange because of the fear of rises in personal tax rates. Now that the Chancellor has maintained CGT and inheritance tax rates, and not clamped down on reliefs where small businesses are sold, we can expect to see even greater demand.
"This is a good market to sell in," says Richard Baldwin, a tax partner at Deloitte & Touche, which specialises in advising owner-managed firms. "The capital tax regime is still benign. Under reforms introduced by the last Conservative government, if you give shares to relations you won't be liable for inheritance tax, and can roll over any gain without tax, even if a person dies within seven years. Labour did threaten to act on inheritance tax, but has not done anything about it."
Owners of small companies can, as an alternative, sell their businesses as going concerns, and make sure of a low tax liability, provided that they are more than 50. "If you are selling then the main relief is from capital gains tax if you are over 50, from the retirement relief," says Mr Baldwin.
"This means that if the sale price is under pounds 250,000 you don't pay any tax at all, which is brilliant. On the next pounds 750,000 you only pay half the top rate. This means that if you sell a business for pounds 1m you will only pay tax of pounds 150,000, which is reasonably generous."
Mr Baldwin and the National Federation of the Self-Employed and Small Businesses would both have preferred Gordon Brown to extend the retirement relief to apply to all long-term owners of small firms, rather than limit it to people over 50. But the federation says that it believes that the risk of boom and bust cycles has now been reduced, improving the longer term viability of small firms, and strengthening their sales price.
David Kilshaw, a tax partner at KPMG, says that the helpful tax environment is a key reason why the market for selling small businesses is so healthy. "We are finding the market is very strong," says Mr Kilshaw. "Trade buyers and venture capitalists are chasing good companies at the moment. More businesses are coming on the market, because of the demand. If a seller arranges the sale sensibly then they won't be paying 40 per cent tax."
John Spence, the managing director of business banking at Lloyds-TSB, takes a more cautious view, but agrees this is a good time to sell a business. "It was an interest-adding budget," says Mr Spence. "That will be detrimental to small firms, which are hit particularly hard by high interest rates." He believes that will show through in lower profitability over the next couple of years.
What is more, says Mr Spence, the Budget should not be interpreted as an indication that inheritance tax and capital gains tax will not rise before the next election. "I would still expect higher capital gains and inheritance tax rates. There was no commitment made."
Mr Spence agrees that the current demand in the market place means that owners of small firms stand to get a good price if they sell at the moment, taking advantage of a better tax regime than may apply in future years. "There is such a high liquidity in the market," he points out. Mr Spence adds that sales of small firms to existing managers are helped by the much greater willingness of venture capitalists to lend to businesses with a proven track record, rather than to new-start companies.
For entrepreneurs who are considering upping sticks and moving on, there may not be a better moment to sell.Reuse content