With less than 6 months to go before the abolition of taper relief, it's not too late for those selling a business to avoid paying the increased rate

For the SME owner, for whom a company sale is likely to be a once in a lifetime experience, the end of taper relief will be a significant blow.

The Chancellor announced in his pre-Budget report that a flat gain rate of 18% will be charged on the sale of all assets from 6 April 2008. Currently, most business owners are entitled to maximum taper relief on the sale of a business after 2 years of ownership, which usually means they only pay 10% capital gains tax (CGT) when they sell a business.

The surprise move, effectively an 80% tax hike on the current 10% rate, will greatly reduce the proceeds business owners receive when selling a business.

However, with less than 6 months to go before the abolition of taper relief, it is not too late for sellers of businesses to avoid paying the increased rate. Selling a business generally takes between 3 and 6 months to complete, so business owners who act quickly can still avoid the planned increase.

"Sellers will want to avoid negotiating near the 6 April deadline, and should aim to complete by the end of February", said David Young of Shield Corporate Finance. "We can achieve sales within 2 months at a push, so there's still time for sellers who want to use the benefit of taper relief to do so. And we're helping a lot of owner managers assess the trade off between the taxation and valuation issues involved in accelerating their exits."

Changes to Capital Gains Tax (CGT)

The changes to the CGT regime including the end of taper relief are widely seen as a way of closing a loophole that benefits private equity. Ironically, one of the few groups who seemed generally pleased with the announcement were the private equity groups themselves, who feared more draconian measures such as treating carried interest as income, attracting a 40% tax rate.

Selling a business

Shield Corporate Finance cautions, however, that business owners who are not yet ready to sell a company should not rush towards an exit simply in an attempt to avoid the new tax regime. Successful sale preparation, and a Value Building program in the months prior to selling a business, are likely to reap greater rewards than a "forced" sale, based on the abolition of taper relief, where a company is not fully prepared for exit.

Think you are ready to sell a business?

Why not assess your readiness for company sale by taking Shield's Sale Fitness Test?

Does the end of Taper Relief affect you? If so contact us as soon as possible to find out more

Shield appreciates that confidentiality is vital and understands that you may wish to remain anonymous by using a pseudonym.

Name or pseudonym:*
Email:*
Message:*

*Indicates a field you must enter.

Essential book on Value-Building now available to buy here

'Increase and Extract the Value of Your Business', co-written by Shield M&A's David Young, is an essential book for business owners and leaders, showing how to build value and make a business more saleable, what a sale involves and even how to realise value without losing control.

If you are interested in any of the following questions then this book is for you:

Can I realise value without selling/losing control?
How can I make my business more saleable?
How can I maximise value in my business?
What choices and alternatives are there?
What would a sale involve?
What is value?

Get your copy here

About Shield Corporate Finance

Shield's Chief Executive and Founder, David Young

In 2001, David Young founded Shield Corporate Finance as an independent specialist advisory firm, to provide world-class M&A advice without regard to transaction size and without conflicts of interest. With a special interest in the keys to success in divestiture work, Shield is committed to producing remarkable results for shareholders. We have offices in London, Cambridge and Poole, representatives in Cannes, Beijing and Johannesburg, and alliances with Soft Bank in Japan and Kingsway and Tianyi Securities in China.