CGT hike triggers rush to sell companies

The Chancellor's "shambolic" changes to Capital Gains Tax have left those affected "under pressure", "angry" and "aggrieved", according to Britain's leading accountancy professionals. Firms large and small are reporting a rush in business as the Treasury has left a window of a few weeks before the 10 per cent levy on most of these capital gains is replaced at midnight on 5 April by the new 18 per cent rate.

Stephen Quest, tax partner at Grant Thornton, said: "The upturn in business is very significant and has accelerated in the last couple of weeks. It's about 50 per cent up on this time last year, which was also busy. We've seen a real frothing up. Sales are being triggered and brought forward, typically of family-controlled businesses and across a wide range of values, anything from £10m up to £150m. Prices have come down a bit. They're often selling to private equity."

The suspicion is that those selling businesses that have been built up over decades, or generations, are having to do so for less than they might otherwise. Having waited some time for the Treasury to be definite about the changes, they are now faced with having to do things in a hurry. Kevin Nicholson, head of entrepreneurs and private companies at PricewaterhouseCoopers, was clear about the distress caused to clients: "They resent doing things in a rush. Some are angry that they've built up companies that were intended to be a pension pot on the basis of a 10 per cent tax rate. Suddenly it's 18 per cent. They're wondering what the next change will be, and the next. There's anger and frustration at that."

One PWC client, Tim Allen, considers that he's had a lucky escape. He was both an investor in and chairman of Birchwood Products, a building-materials distribution company. The company was sold to BSS last Friday for £22.4m. "We accelerated our sale plan when the changes were announced," Mr Allen said. "But we were lucky to have a purchaser who was extremely reasonable and didn't try to chip something off the price. I think Darling has used a sledgehammer to crack a nut. Effectively, a retrospective change [to 18 per cent] was rushed through without thought when they were trying to hit at private equity. It's aimed at the wrong people."

The accountants say that some rules on CGT were published only days ago, and complex financial transactions now have to be completed in just weeks. Jan Ellis, a partner at Blick Rothenberg, warned that, with so many deals running into billions of pounds going through in such a short period, the financial system may even have problems coping: "There could be too many transactions that are too big. We can cope with the buzz of a deal, but the accountants are getting quite weary with being in a state of flux. It's not great when you're dealing with people's lives with no legislative certainty. It also comes across as amateurish for UK PLC. Why should people invest when all these things come out of nowhere and bite you? It's shambolic."

Although the Chancellor announced his proposals as long ago as last October's pre-Budget report, the pressure on him to alter the rules – and his own hints that he might do so – have left uncertainty. Even now, the question of non-domiciled individuals seems unsettled. Next week's Budget will aim to end the confusion. Meanwhile, many businesses are being sold to private equity, tax-efficient loan notes received for businesses already disposed of are being sold on, directors are selling shares, and others have been investigating "bed and breakfast" arrangements to retain family or partnership control.

Interesting? Click here to explore further