Entrepreneurs looking to sell have been urged to sit tight until global economic conditions improve, despite the probability that they will have to pay more tax after April 6.
Chancellor Alistair Darling confirmed last week that taper relief would be scrapped in favour of a flat rate of 18% for capital gains tax for disposals of businesses, with the first £1m of capital gains over a lifetime taxed at 10%.
For many who were previously eligible for a 10% rate on the total gains, the increased tax has provided an unexpected burden, FDUK said.
However, according to FDUK, which provides part-time financial directors to businesses, entrepreneurs are more likely to get a lower valuation in the current economic climate, which would ultimately lose them more than the changes to capital gains tax.
Mike Pawley, FDUK director, commented: “In the current economic conditions it’s not a great market to be selling a business, so our advice to entrepreneurs is to hang on for a year or so.
“The increased net value of the business may then more than make up for the money lost through paying capital gains tax. For smaller businesses where the entrepreneur is making a gain of less than £1m the new regime will make little difference in any case.”
Pawley argued that the lifetime allowance of £1m taxable at 10% did not go far enough to make up for the abolition of taper relief and would discourage entrepreneurship.
“This comes at a time when many businesses are already being clobbered by an increase in corporation tax and expected rise in fuel duty,” he added.
© Crimson Business Ltd. 2008
