The tax landscape for business owners is set to get tighter in 2025 following the Government’s October Budget and changes to Capital Gains Tax rates and tightening Business Asset Disposal Relief (BADR), Business Property Relief and Agricultural Property Relief thresholds.
Whilst tax is rarely the driver behind an exit or business sale it will be an important factor to consider and will shape business exit strategies for 2025. As always, advance planning and advice is essential.
The rise of employee ownership trusts
Employee Ownership Trusts (EOT) are an increasingly popular way for business owners and shareholders to exit their business in a tax-efficient way whilst rewarding employees who have helped build that business.
They offer 100% relief from capital gain tax on the sale proceeds alongside an often easier and quicker sale process. As the name suggests, the business is sold to a trust that holds the business for the benefit of its employees.
Helpfully, founders and shareholders are not required to sell all of their shares to an EOT, meaning shareholders can continue to work and contribute to the company and sit on the EOT board. The EOT must, however, hold a controlling interest in the business.
Given the erosion of BADR, we have already seen considerable interest in EOTs and expect that to accelerate in 2025.
Family succession
There are, according to Oxford Economics, some 4.8 million family-owned businesses in the UK, making up some 85% of all private sector businesses. Whilst very few will survive into the third or fourth generation, succession to the next generation is often desirable and an efficient way to exit the business and ensure its continuation.
Following the October Budget, there is considerable concern over the impact of changes to Business Property Relief and, for farming families, Agricultural Property Relief.
Gifting shares in the business to the next generation will be a key cornerstone of succession and exit strategies for family-owned businesses in 2025.
Sale and mergers
For many businesses, a sale to an EOT or succession to family members will not be possible or desirable. A more traditional trade sale to a third party, to a management team or a merger will be the most suitable option whilst delivering the best value.
Capital gains tax rates will increase further in April 2025, and we are expecting a spike in sale activity to beat that rise.
However, tax rarely leads the decision to exit, meaning traditional exit strategies will remain strong throughout the year.
A year of opportunity
Whilst some business owners will be looking for an exit, that will for others present attractive opportunities for growth.
For most businesses, growth will be delivered organically, through increased sales, new product lines and finding further efficiencies. But for others, there will be the opportunity to deliver growth through acquisition or strategic merger.
How Hillier Hopkins can help
Preparing for an exit or growth through merger and acquisition takes time and careful planning. Taking early advice is important, and so too is having the right team on board.
Hillier Hopkins brings years of experience in helping business owners step down and supporting others on their growth journey. Get in touch to find out how we can help you in 2025.
