For clients thinking of buying or selling companies Capital Gains Tax (CGT) has by far the biggest impact and so far, there is no indication that the CGT rate has changed in this mini-budget – which is good.
The trickle-down economic strategy that the new team in No 10 has adopted of trying to grow the cake (the economy) rather than slicing a smaller cake (taxing the rich and redistributing the rewards) is very different. Today’s mini-budget announcements appear to be good news for business – the 8% tax hike entrepreneurs faced with the planned Corporation Tax and National Insurance hikes are now reversed, as is the planned dividend tax increase.
This gives more margin to reinvest and absorb the cost of living increases we are all facing. It may also attract more foreign investment, which with a low pound may just work. The Treasury claims that the forecasted 1% higher growth could eventually increase annual tax receipts by £47 billion!
Kwasi: “We want businesses to invest in the UK, we want the brightest and the best to work here and we want better living standards for everyone.”
However, many leading economists are very unhappy that UK plc already carries such a large debt burden (99.6% of GDP), and tax cuts right now will increase this – a tricky balancing act. However, what does not seem to have been discussed is that inflation is actually reducing that burden at the same speed or more than it is growing, and Italy’s is 150% of GDP.
There are no right answers and only time will tell whether tax cuts helping businesses will result in growth – will we reinvest and spend? Our view: something entirely new needed to be tried as austerity was failing to boost productivity, therefore if we can just stay ahead of the debt curve it is worth a shot.
If this approach does not work, then we will face those higher tax threats again and CGT, a tax on the wealthy, will be centre stage once more, especially if there is a change of party. So, for now, we need to be more pro-business/pro-wealthy (all benefit from tax cuts) and see if this does help productivity and thus eventually trickle down. Whether you are buying or selling – keeping heads down and focusing on the factors we can control remain the mantra.
Headlines
- Capital allowances Annual investment allowance: will remain at £1million.Seed Enterprise Investment Scheme (SEIS): an increase in limits
- Reversal of corporation tax rise from 25% to 19%: to plough £60bn back into the economy
- National Insurance a reversal of the extra 1.25% in National Insurance, to apply from 6 November 2022.
- A reversal of the increase in dividend tax.
- Cut basic rate of income tax to 19% and higher rate income tax of 45% to be abolished
- No change to Capital Gains Tax with business asset disposal relief (BADR) means the gain on sale of trading company per executive shareholder with more than 5% for two years will pay is 10% tax on the first million, 20% tax thereafter. (BADR), formerly Entrepreneurs’ relief
Contact Avondale Corporate
If you would like to discuss the impact of the mini-budget on M&A further, please contact us at +44 (0)1737 240888, our Contact Us page, or email av@avondale.co.uk.
