After UK finance minister Rachel Reeves said that the government would have to increase taxes in the October budget, new research released by wealth manager Evelyn Partners shows that UK business owners have bought forward exit strategies.

UK business owners have fast-tracked their exit plans over the past 12 months, according to research published by London-based Evelyn Partners.

Nearly one in three (29 per cent) have accelerated business exits in the last year, ahead of the upcoming budget on 30 October, where there could be a hike in capital gains tax (CGT) rates and potential cuts in inheritance tax (IHT) reliefs. Sixty-three per cent of business owners are currently working towards an exit strategy within the next six months to three years.

The research comes at a time when speculation about rising taxes on inheritance, savings and investment, combined with a scheduled abolition of the resident non-domicile regime, has prompted talk that the UK will experience a wealth exodus. For example, last week, the Adam Smith Institute, a think tank, said UK millionaires are heading for the exits.

Nearly a quarter (23 per cent) of the 500 business owners with turnovers of upwards of £5 million ($6.5 million) surveyed by Evelyn Partners who had fast-tracked their exits in the last year had done so because of worries about an increase in CGT. In addition, 20 per cent brought forward business exits over the past 12 months because of fears of potential cuts in IHT reliefs, which could make it more costly to pass businesses on to the next generation.   

IHT is currently charged at 40 per cent above a threshold on the estate of a deceased person, currently set at £325,000. But there is concern that Reeves will make it more difficult to gift money and assets, such as farmland, tax free, or scrap business relief, which enables an individual to pass on a company or shares if it is unlisted with 100 per cent tax relief.

The government has ruled out increasing the main rate of corporation tax above 25 per cent and has pledged to freeze headline rates of VAT and income tax in the budget. However, the Treasury has remained tight-lipped on the outlook for CGT rates and IHT reliefs, as well as the tax rules for workplace pensions.

Financial challenges
Other factors are also at play: 25 per cent of business owners who had fast-tracked business exits said they had done so because of personal finance challenges which resulted in a need to access the capital tied up in their business. In addition, 24 per cent brought forward plans due to increased costs of accessing capital as a result of rising interest rates.

“As the countdown to the budget on 30 October ticks away, we have been contacted by an increasing number of business owners worried about what the chancellor will do to CGT and IHT,” Laura Hayward, tax partner at Evelyn Partners, said. “The prime minister’s statement that the upcoming budget would be painful has put owner-managed businesses on edge and this has prompted many to want to exit as quickly as possible.”

“The business environment for many owners has already been tough enough in recent years as they have worked hard to rebuild their businesses after the pandemic, against a backdrop of cost-of-living pressures and high inflation,” she said. “Add to that the potential for unfavourable tax changes in the upcoming budget and it’s completely understandable that some are hoping to realise the gains of their successes sooner rather than later,” she continued.

Of those owners who are currently working towards a business exit, family succession (22 per cent) is the most popular strategy followed by establishing an employee ownership trust (16 per cent). 

“Speculation is rife that the chancellor will curtail business relief which can help to soften burdensome IHT liabilities and we have had conversations with many business owners who want to fast-track succession plans while this valuable relief is still available,” Hayward said.

“Setting up employee ownership trusts has been gaining ground as an exit strategy for business owners in recent years, so it’s no surprise to see these score highly in the research. Setting up an employee ownership trust can be a faster process than going to market, while at the same time giving business owners greater control of the valuation of the business,” she added.

“Whatever strategy is used, exiting a business is a really big decision for business owners and it’s important that they put in place a plan that is appropriate for them and their business. Holistic advice considering both the business and personal implications of a sale will help make the exit – which can be fast-tracked if need be – as successful as possible,” Hayward concluded.

The research was conducted by Censuswide, among a sample of 500 18+ UK business owners, for businesses with a turnover of £5 million+. The data was collected between 18 September and 2 October 2024. See more commentary here about IHT and potential tax hikes in the budget.