General elections provide a punctuation point in the business cycle of all businesses. The lead up to an election is often marred by uncertainty and businesses are likely to start pressing the pause button on significant decisions until after the election has taken place.
Policies that could affect your business
Whilst many different policy areas will affect businesses’ strategies in the coming months, tax policy is the current hot topic following the Spring Budget.
The Conservatives look set to continue seeking to lower taxes, a strategy that was demonstrated in the Spring Budget where the Chancellor announced a 2p cut in National Insurance contributions for the employed and self-employed. Who knows what other tax changes the Conservatives might look to introduce in their election manifesto?
Labour, meanwhile, keen to demonstrate their economic credentials, have been relatively tight-lipped on their tax policy. That said, the common view is that Labour will look to use the tax system to fund some of their broader aspirations.
Key tax issues that are likely to have an effect on family businesses include:
- Inheritance tax (IHT): Especially important for family business owners considering succession planning, IHT could be a key battleground area in the general election. The Chancellor’s announcements regarding non-dom status in the Spring Budget included proposals for a new residence-based scheme for IHT. The Government says such changes will be subject to consultation and would come into effect no earlier than 6 April 2025.
- Capital gains tax (CGT): CGT is an important issue for business owners, given the tax liability that can arise when a business is sold. Whilst Labour has ruled out increasing the rate of CGT, it has not ruled out making changes to the various exemptions and reliefs that apply to it. One such relief is Business Asset Disposal Relief (formerly “Entrepreneurs Relief”), whereby business owners who have owned their business for more than 2 years can benefit from a lower CGT rate of 10% when they sell their business (subject to various conditions and a lifetime limit of £1m). The threat of losing this relief may encourage those who are considering selling their business to do so sooner rather than later in an attempt to avoid any unfavourable changes to the regime.
- Business rates: For any business that occupies non-domestic property, business rates can represent a significant cost. With Labour promising to scrap business rates and replace them with a new system that is “fit for the 21st century”, and the Conservatives pledging to reduce business rates by carrying out a “fundamental review of the system”, it is clear that this is one policy area for business owners to pay close attention to.
Key questions for family businesses
Whilst detailed election manifestos for the main political parties are yet to be published, it is clear that, regardless of who is elected, changes are coming for all businesses – including family businesses.
Family business owners should prepare for the election now, and in doing so, should consider the following key questions:
- Transactions: Is the business about to engage in a major transaction or change, such as the sale of the business or transfer of control to a younger family member? If such a transaction is contemplated or underway, business owners should consider whether to complete the transaction prior to any changes being implemented to the taxation system.
- Succession planning: Does the business have a succession plan? Now is a good time to consider whether any such plan remains suitable in light of potential changes to the tax system, and whether professional advice should be sought. See our article Succession: More than just a TV show for a more detailed analysis of this topic.
- Business planning: Is the business’ business plan up to date, and does it reflect the wishes of the current shareholders? Do the shareholders have a common long-term goal, or would now be a good time for some or all of them to exit the business?
- Financial health: Is the business’ financial position robust enough to deal with election uncertainty? If doubtful, would now be a good time to sell the business or seek an injection of capital?
The contents of this article may be affected by the Chancellor’s Budget on 30 October. Please visit our website from 30 October for an update on relevant Budget changes or approach your usual PHB contact.
