Business Sales Soar Over 70%
Business owners in the UK are accelerating their plans to sell, driven by concerns over potential tax increases under a future Labour government, according to recent research.
The number of mergers and acquisitions involving both public and private companies in the UK surged to 855 by the end of the first quarter, marking a 71% increase. This spike is largely attributed to entrepreneurs rushing to sell their businesses before anticipated tax hikes.
Rachel Reeves, the new Chancellor, is set to announce her first budget in the autumn, which has prompted fears among business owners of a rise in capital gains tax on business sales. It was noted that many entrepreneurs are expediting their sales to avoid higher taxes.
Last week's figures from the Office for National Statistics showed government borrowing at £14.5 billion last month, £2.9 billion more than anticipated, underscoring the difficult tax and spending decisions Reeves will face, likely in September or October.
Additionally, there have been concerns that Labour might reduce business asset disposal relief, which currently allows those owning more than 5% of a company to sell their stake at a lower tax rate. Entrepreneurs have previously suffered when this relief was reduced in 2020, leading to higher taxes on business sales.
Rachel Reeves Expected to Unveil £25bn in Tax Hikes Ahead of Summer Recess
Michael Saunders, an adviser at Oxford Economics, suggests Chancellor Rachel Reeves might introduce up to £25 billion in tax increases in an upcoming fiscal review to "deliver bad news early".
Reeves is set to present her assessment of government spending and public finances before Parliament's summer recess. Saunders, a former Bank of England ratesetter, believes Reeves will use a "kitchen sink" strategy, revealing all fiscal challenges upfront.
In her first speech as Chancellor, Reeves ordered a comprehensive evaluation of public finances, which will be disclosed soon. She claims Labour have inherited the worst economic conditions since WWII.
Saunders, now at Oxford Economics, predicts the review will show a grim fiscal outlook, requiring higher public spending, more flexibility with fiscal rules, and a credible plan for fiscal tightening. He wrote, “We suspect the new Chancellor will ‘kitchen sink it’, disclosing all fiscal issues early. This allows for corrective measures and shifts blame to the previous Conservative administration.”
Previous Chancellor Jeremy Hunt met fiscal rules with an £8.9 billion margin by planning £20 billion in cuts to unprotected departmental budgets. Saunders suggests Reeves might counter these cuts with tax increases and changes to government debt definitions. He added, “This approach benefits the new government by presenting a credible mix of fiscal consolidation to financial markets and aligning with political goals by reducing public spending cuts.”
To create more fiscal space, Reeves might adjust capital gains tax and target various tax reliefs. Reeves and Prime Minister Sir Keir Starmer have promised not to increase the headline rates of income tax, VAT, and national insurance but did not make similar concessions to any related reliefs.
Analysts also suggest Reeves might increase borrowing to avoid austerity-like cuts and fund a 5.5% pay rise for NHS and education workers.
The Treasury stated, “The Chancellor has commissioned an assessment of the government’s spending inheritance, to be presented to Parliament before the summer recess.”
How Can Qubic Help?
To navigate these potential changes, Qubic offers tailored tax planning services. Our expertise can help mitigate the impact of higher taxes and leverage current reliefs effectively. The window of opportunity to leverage current tax rates and reliefs is narrowing, and the time to act is now.
We understand that the uncertainty surrounding tax changes can be challenging, and we are here to help you.
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