Pre-election tax relief jitters may drive IFA sales

Pre-election tax relief jitters may drive IFA sales

Uncertainty around the outcome of the general election could be encouraging some adviser business owners to consider their sale prior to 7 May, according to Brown Shipley’s head of wealth management Roger Clark.

Speaking to FTAdviser, he explained that advisers are increasingly concerned that one of the most advantageous tax reliefs available to small businesses, capital gains tax entrepreneurs relief, may not survive a change of government in its current form.

“By claiming this relief when selling all or part of their company, business owners pay less capital gains tax - 10 per cent on qualifying assets, instead of the normal rate of 18 or 28 per cent. Individuals have a lifetime limit of £10m of taxable gain, meaning they will have saved £1.8m if they use their full allowance.”

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Originally introduced in 2008, the relief was initially capped at capital gains of £2m, but was subsequently raised to £10m.

Mr Clark added that in his opinion, tax should not be the driver for business sale decisions and commercial considerations should always come first.

“However, whether this generous tax relief is retained, reduced or removed altogether, business owners should be aware of the implications of these possible outcomes.”

Kevin Ronaldson, chief executive of consolidator Bellpenny, agreed that in his experience most IFA vendors are making long-term strategic decisions, so sale decisions are unlikely to be overly influenced by short-term tax considerations.

“However, we certainly wouldn’t rule out a spike in activity as vendors seek to ensure that in-progress deals get over the line as quickly as possible in order to mitigate possible political risk.”

David Hesketh, corporate development director at Perspective, shared the view that vendors have always looked to sell their business in the most tax efficient way.

“This is usually by way of a share (rather than trade and asset) sale to qualify for entrepreneurs relief. The other advantage of this deal structure for the seller is they ‘sell’ the past liabilities of the company and do not require professional indemnity run off cover post deal.

“That said, we have not seen potential vendors looking to sell their business because of an anticipated changes in tax. ‎The key drivers are retirement, joining a national group for support etc. rather than tax.”

A spokesman for Towry - which recently announced on of the biggest adviser acquisitions this year - said the firm has not noticed a rush of clients considering the sale of their business due to a possible axing of entrepreneurs relief.

The spokesperson said: “We wouldn’t say it’s a good idea to make such a big decision based purely on such speculation.”

Alan Hudson, chief executive of another active consolidator AFH Financial, said: “We hold the view that the pace of consolidation will accelerate as more and more IFA’s see their peers selling to or joining businesses like ours.”