In his debut Budget last week, Rishi Sunak announced a shake-up of entrepreneurs' relief, limiting the tax break available to those selling their businesses to £1m over a lifetime.
The chancellor ignored calls to abolish the relief completely, claiming the government should not discourage genuine entrepreneurs who rely on the relief, and instead reduced the lifetime limit down from £10m.
The rules allow business owners of two years or more to pay less capital gains tax when they sell (10 per cent rather than 20 per cent), but this relief will now be capped at £1m for any one person and effective immediately.
Some I know will withdraw from the process entirely, others will have some serious thinking to do. Louise JeffreysThe move, which Mr Sunak said would have no impact on 80 per cent of small businesses, could affect advisers wishing to sell their business in a landscape of increasing consolidation.
Louise Jeffreys, managing director at introducer Gunner & Co, said depending on the number of shareholders in a company, the relief cut could impact 25 per cent of advice deals.
Ms Jeffreys said: "While many business owners in the financial planning sector will be spooked by these changes – which are enforced immediately – the reality is that many professional, large scale buyers are reticent to complete smaller acquisitions as share purchases.
"So many of these smaller sellers would have only qualified for relief at the wind up of their companies, not at the point of selling their assets to an acquirer.
"Some I know will withdraw from the process entirely, others will have some serious thinking to do."
Ms Jeffreys said asset purchase structures, in comparison to a share purchase, could now be more appealing in the advice market.
She added: "How will this affect business valuations? That remains to be seen - historically asset purchases have commanded a higher multiple to share purchases, in part to mitigate the poorer tax position, and in part to recognise the preference to a simpler transaction."
There has been a recent flurry of activity from smaller sellers in the advice market, which has been frequently attributed to rising regulatory costs and retiring principals.
The number of sales on the higher end of the scale have also been on an upward trajectory in both volume and value, with Financial Adviser reporting earlier this month funds spent on this area of the IFA market had jumped by more than 100 per cent last year to £249m.
Ms Jeffreys said acquisition deals in this higher value area of the market were most likely to be most affected by the relief cut.
Last week's Budget announcement has led to predictions advisers could move to extract value from a company before it is sold.
But Daryl Grundy, chief executive at Ithavoll Capital, said the additional 10 per cent tax was unlikely to deter most deals in which sellers were already set on completing.
Mr Grundy said: "It is also not uncommon to see a business which is valued at, say, £4m but there are three shareholders and therefore, split each way, the net increase in the tax is pretty minimal.
"I don’t think it’s going to put a stop to deals and I think people will now start planning ahead.
"The one word of caution I would add, is there might be a situation where a seller asks the buyer to increase their offer by 10 per cent to reflect the increase in tax.
"And I think certainly what we are seeing is the buyer being much more punchy about what they are prepared to do at the top end. I do see the buyer circle is much more in control in terms of what they are willing to put out there."
But Mr Grundy said if a seller goes into a deal with control over the negotiation process, with multiple interested parties, it is possible to encourage a buyer to bid up on the offer price.
rachel.mortimer@ft.com
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