A recent report released by the Institute for Fiscal Studies (“IFS”) anticipates significant tax rises in the UK between now and the next general election in late 2024. UK tax revenues are forecast to account for 37% of national income by the end of 2024, versus 33% in 2019 – this would represent an all-time high in the UK, as illustrated in Figure 1.
Figure 1. UK tax revenues as a percentage of national income
*Source – IFS: https://ifs.org.uk/articles/will-be-biggest-tax-raising-parliament-record
The UK has experienced notable tax increases recently, examples including the uplift in the main rate of Corporation Tax from 19% to 25%, as well as freezes on various Income Tax and National Insurance (“NI”) thresholds. That said, it is anticipated that the UK government will seek further tax revenues to combat a demand for a greater level of public spending in areas such as expanding the NHS workforce and hiring more police officers.
Although there is an expectation that the current UK government will announce tax cuts in the run up to the next general election, the IFS do not expect these announcements to come to fruition, with Rishi Sunak’s government already evidencing that they are in fact a tax-raising administration.
Looking ahead to the next general election in late 2024, polls are forecasting a Labour win, and it can be expected that such a result would see taxes continue an upward trajectory via Labour’s tax policy, which has historically targeted higher earners. As such, regardless of the outcome of the 2024 general election, the IFS remains confident that tax rates will continue to rise.
However, one thing not made clear in the IFS’s predictions is who will be most impacted by tax rises in 2024: companies, individuals, or business owners. That said, with the recent increases in Corporation Tax and freezing of Income Tax and NI thresholds, a natural next step would be to target individuals through an increase in Capital Gains Tax (“CGT”). Furthermore, it is worth noting that in April 2023, Labour Deputy leader Angela Rayner opened a televised debate by suggesting that a commitment to increase CGT rates could be included in Labour’s election manifesto.
With the threat of tax increases looming, it is clear that business owners looking to release capital or to sell their businesses in the short to medium term must seriously consider whether now is the right time to pull the trigger to take advantage of favourable CGT rates. To go one step further, Ryecroft Glenton CF (“RGCF”) would advise that any such individuals should be starting this process now to benefit ahead of the next general election, appreciating that it is typical for a sale process to span c.6 months.
Whilst some business owners may remain nervous about a sale in the current macroeconomic climate, RGCF have positively noted that in H1 2023 the lower-mid M&A market remained more resilient than the market as a whole, with smaller deals proving easier to conclude amidst today’s difficult financing and funding markets. This resilience has been reflected in RGCF’s recent activity, with the firm having advised on the successful sale of several businesses, including the sale of R H Irving to Mitie plc, the sale of Hammond Chemicals to Euston Capital and the sale of M2 Education to PE backed Humly, to name a few.
Adam Tindale
Corporate Finance Manager
With this resilience expected to continue into H2 2023 and 2024, RGCF are continuing to provide UK business owners with strategic advice to maximise the value they receive on ultimate sale of their businesses. Should you wish to set up an initial, confidential conversation to understand more about how RGCF can help you maximise the value of your business in anticipation of a potential sale, please contact Corporate Finance Manager, Adam Tindale, email: adamtindale@ryecroftglenton.com.
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