‘I’m selling my business – a capital gains raid would cost me £1m’
Technology entrepreneur Patrick Copping has made millions selling two businesses over the past decade. But his latest deal may well be his last, and most tricky.
Copping, 49, is one of many hard-working entrepreneurs currently selling up and hoping to avoid a tax clampdown from Chancellor Rachel Reeves in her October Budget.
While Labour has pledged not to raise income tax, National Insurance and VAT, there are fears of a capital gains tax (CGT) raid, and of clampdowns on reliefs.
Copping runs Conversant Technology, which provides software for businesses to integrate Microsoft Teams into their own tools. He started the process of selling his company before the election, and is considering his next venture – which will depend on what happens to the tax regime under the Government.
The latest deadline to complete his deal on the sale of his company is October 31, a day after Reeves’s much-anticipated first Budget – although Copping is confident that his business will be sold before then.
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Any change to CGT and reliefs could theoretically be imposed immediately, but Copping thinks it would be imposed in the next tax year.
The threat of such a raid is focusing his mind on getting the deal done, he says. If his deal did get caught in a CGT raid, he could stand to pay around £1m more in tax at the 45pc rate.
“We were lucky that we were already in the process of selling and have agreed a price,” he says. “If I were going in today, I would write into the contract that if it doesn’t happen by a certain point or CGT goes up, then I will be withdrawing.”
‘For the risks of being an entrepreneur, you may as well get a job’
Commentators suggest Reeves may bring CGT in line with income tax bands. The Government could also scrap business asset disposal relief (BADR), which currently gives entrepreneurs a lower CGT rate of 10pc on up to £1m of gains from a business sale.
Like many entrepreneurs, Copping doesn’t understand what the Government hopes to gain if it raises CGT. Experts fear that such a move may mean business owners hold on to assets instead, and Copping argues that it ignores the economic contribution that small business founders are making.
“It is not good enough to say anyone with broad shoulders should pay more,” he says. “All entrepreneurs are working people, they work harder than most people I know. We are creating jobs, paying taxes and working seven days a week, not clocking off at 5pm.
“For the risks and downside of running your own business as well as not seeing family, you may as well just get a job if the CGT rate is now 40pc or 45pc.
“I am not sure I would sell another business if the tax environment changes.”
Accelerating plans to sell up
Entrepreneurs have already seen their profits hit by falling CGT allowances under the Tory government. It dropped to £3,000 in the current tax year, from £6,000 in 2023/2024 and £12,300 previously.
The threshold for BADR was also reduced from gains of £10m to £1m during the pandemic.
Fears of further changes and higher tax rates under the Labour regime have prompted some business owners to bring forward their deals and sell earlier than previously planned.
Rob Newman, of CCM Accountants, who is working with a manufacturing business on a sale, says his clients will be hundreds of thousands of pounds worse off if CGT rises in the Budget – so they are accelerating their plans by at least two years.
The proposed transaction he is advising on is valued at £6m, with four shareholders. Under the Conservative government, their CGT liability was estimated at £200,000 each, but could rise to £675,000 if CGT is raised to match income tax levels.
“In a climate where the link between risk and reward appears to be forgotten, it is important to remember that the resilience of small business owners is truly remarkable,” says Newman. “They deserve to be acknowledged for the vital role they play in our society.”
‘Buyers are using a lack of certainty to chip down the price’
Many business owners have been panicked by rumours of a rise in CGT. Those in the middle of deals have tried to speed up transactions, while buyers have used the uncertainty to get a discount.
Tom Minnikin, partner at tax consultancy Forbes Dawson, says his firm is receiving lots of inquiries from clients who are worried about changes to CGT. “Most of the calls are from business owners who are concerned by tax rates being increased, or various reliefs being removed.
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“The potential withdrawal of business asset disposal relief – formerly known as entrepreneurs’ relief – is a key concern.
“Many of our clients have worked hard over several years to build up their businesses, with the aim of having a small reward when they come to sell or retire. If CGT is aligned with income tax, then it will leave them feeling like it was all a wasted effort.
“In some cases, clients are looking to advance disposals ahead of the Budget. The thinking here is that rates are unlikely to go down any time soon. It is a difficult area to advise on though, because we can only guess what the changes might be.”
Where business owners are already in the middle of transactions, Minnikin says the advice is to try and get deals completed before October 30. This is the only way to have certainty.
“However, we have seen some buyers use this as a tool to chip down the price,” he adds.
“In other cases, there may be ways for clients to lock in disposals, for example, by gifting shares to a family trust. However, this comes with the risk of incurring dry tax charges if the capital gains tax rules are left unchanged.
“All of this uncertainty could be avoided if the Government provided more clarity about the nature of likely changes. For instance, if we knew that measures were only going to apply from 6 April 2025 then it would give individuals time to plan their affairs.”
Ian Cook, chartered financial planner from Quilter Cheviot, says it is important that business owners don’t panic.
“The overarching message should be not to make rash decisions based on conjecture about what might happen. Anything put in place now should be in line with your financial plan and not a reaction to rumours.
“That said, if a sale is in motion, then it might be wise to get it through under the current rules.”