A Budget for M&A and investors in private companies.

What the 2016 Budget means for companies and investors

The 2016 Budget was good for M&A, and for investors in unquoted companies.

Capital Gains Tax (‘GCT’) is to come down from 28% to 20% for higher rate taxpayers and from 18% to 10% for basic rate taxpayers.  More importantly not only is Entrepreneurs’ Relief (which if you qualify means you only pay 10% CGT on the sale of shares in your business) still around, it has been usefully extended.

Family succession

Entrepreneurs’ Relief can now be used in family businesses to allow for easier family succession. A consequence of changes in the 2015 Finance Act was that in some circumstances a perfectly normal bit of succession planning, exiting by selling the company to family members could see the transaction failing to qualify for Entrepreneurs’ Relief.   This useful change means that succession by way of family buyout or FAMBO becomes easier.

A new relief for external investors

The Chancellor has also created a new relief for external investors in companies, not unlike Entrepreneur’s Relief.  This allows such investors a similar lifetime allowance of £10M of gain at a 10% rate of CGT.  To qualify the shares need to have been acquired as newly issued shares by the person making the disposal, be in an unlisted company, have been issued after 17 March 2016, and to have been held for 3 years.  So it has a longer qualifying period than Entrepreneurs’ Relief, but essentially it provides a financial incentive for individuals to invest in unlisted trading companies.  Quite how it will impact on the exiting SEIS and EIS schemes remains to be seen.  Around Cambridge we see many technology companies making use of SEIS and EIS, I suspect that the new relief may see more privately funded M&A activity in non-tech companies around the region.

Joint ventures and goodwill on incorporation

There have also been some other changes, relaxing some of the conditions around Entrepreneurs’ Relief which will be helpful to those involved in joint venture companies or partnerships, and also those with capital gains arising from the incorporation of an existing business.

All these changes are encouraging for business owners thinking about exit, and for those seeking to raise finance.    Mitigating your tax liabilities, and getting your business sorted out for a successful sale to maximise value takes time, and planning.  And so we’re always happy to have an early conversation with business owners about succession and exit planning,  company sales, and management buyouts.  Often an early discussion with an adviser about the valuation and the sellability of a business can drive a better strategy in the years leading up to exit.

Comment

Lake Falconer

Corporate Finance Partner
Lake leads the PEM Corporate Finance team on MBO, acquisition, disposal, succession and strategic planning. He also heads up PEM’s valuation team providing business valuations for shareholder exits, disputes, business planning and regulation. Lake has over 30 years' senior level experience as a business adviser and as a manager in industry. He holds the ICAEW corporate finance qualification.

Latest from PEM

PEM Corporate Finance advises on succession buyout at Bailey Fisher

14/08/2018 - 16:35

Bailey Fisher Executive Search, a leading Cambridge and London firm focussed on the hiring of senior executives to some of the most successful companies based in the UK, has announced changes to its ownership structure which will further strengthen the business. PEM Corporate Finance acted as lead advisers on the succession buyout.

Read more >

Our culture

13/06/2018 - 12:28

Happiness and well-being is important to us. This emphasis on creating a positive culture where people can thrive is key to our success in attracting and retaining talented employees.

Read more >

PEM Corporate Finance advises on sale of leading energy management company

11/06/2018 - 21:10

eSight Energy Group Ltd, a leading developer and supplier of energy management software, is pleased to announce the sale of the company to German private equity firm, BID Equity. The acquisition enhances BID Equity’s position as an IoT (Internet of Things) provider focused on the energy sector and represents an exciting new growth phase for eSight Energy.

Read more >