Adviser business owners are increasingly being offered sweeteners to prevent large tax bills acting as a disincentive to sell, as buyer demand for intermediary businesses grows in the wake of evidence that the sector is thriving post-Retail Distribution Review.
Harrison Spence, a specialist independent consultancy that works on acquisitions in the advisory sector, said larger buyers keen to buy advisory firms are in some cases even offering to pay any tax liability arising from a sale to encourage owners to sell.
The firm said most financial advisers are set up as limited partnerships and a ‘sale’ typically involves offloading the assets of the business, which would attract a capital gains tax charge of either 18 per cent or 28 per cent.
Brian Spence, founder and managing partner at Harrison Spence, said if the business was instead structured to enable the vendor to sell the shares in the business itself, this would in most cases qualify for entrepreneurs relief and would reduce the tax bill to 10 per cent.
Entrepreneurs relief is available to most individuals disposing of shares in a business in which they control a stake of more than 5 per cent. It is subject to a lifetime allowance of £10m in gains.
Mr Spence said: “The key distinction is between selling assets, which don’t qualify for relief, and selling equity, which can and should qualify”.
He added that as the buying market hots up, many acquirers are not only “increasingly willing” to structure purchases to make them tax-efficient for vendors, including buying equity stakes in advisory businesses, but they are also often happy to pay any tax bill that arises.
“One firm offers several types of deal; each has been structured by a Big Four auditor to ensure they are watertight with HMRC. Others have come up with a simpler solution – they pay the vendor’s tax bill for them.”
Recently there have been a number of large firms on the acquisition trail, most notably listed IFA AFH Financial which recently completed its 20th acquisition since listing in June 2011 and announced plans to raise £1.6m to add to a £3.2m warchest it amassed in 2013.
It also recently announced that it was looking to list on AIM in the second quarter of this year to attract further acquisitions.
Other firms that are said to be on the acquisition trail include notably Towry, which is aiming to double adviser numbers by 2015, Bellpenny, Attivo, which announced plans in January to acquire six firms before the end of the year, and Beaufort Group, which is looking to boost assets by £150m in 2014.
Elsewhere, there has been widespread speculation of larger asset management or life and pensions firms looking to secure distribution by buying into the sector, an example of which was provided in February when Old Mutual acquired the 3,000 adviser-strong Intrinsic network.
