A flood of businesses is voluntarily closing down due to the economic uncertainty around COVID-19 and fears over a possible increase in capital gains tax (CGT), according to analysis by Price Bailey. In Q3 2020 – 3,126 businesses voluntarily appointed liquidators, a 52% increase on Q3 2019, when 2,058 businesses voluntarily appointed liquidators. The number of voluntary liquidations in Q3 2020 represents the highest Q3 total on record. Price Bailey said that it has seen a surge in enquiries from business owners in the past quarter looking to close down their businesses in an orderly way and take cash out. In many cases, however, business owners are acting in haste and could take more cash via a trade sale or management buy-out. The firm points out there has been speculation that CGT will be increased to a maximum rate of 40% as the Chancellor looks to shore up the public finances in the wake of the coronavirus pandemic. Many businesses owners are currently eligible for Business Asset Disposal Relief, previously known as Entrepreneurs’ Relief. This reduces the amount of CGT they are legally required to pay when taking cash out of their businesses to 10%. Many of these business owners are a decade or more before retirement age and their businesses are perfectly viable. Closing them down in many cases will result in job losses, which will have a knock-on effect on the wider economy. There is a large ecosystem of potential buyers with cash to spend, and many of these businesses will have built up intangible value, such as goodwill, which will be lost if they simply cease to trade.

Past performance is not a reliable guide to the future. The value of investments and the income from them can go down as well as up. The value of tax reliefs depend upon individual circumstances and tax rules may change. The FCA does not regulate tax advice. This newsletter is provided strictly for general consideration only and is based on our understanding of law and HM Revenue & Customs practice as of January 2021 and the contents of the Finance Bill. No action must be taken or refrained from based on its contents alone. Accordingly, no responsibility can be assumed for any loss occasioned in connection with the content hereof and any such action or inaction. Professional advice is necessary for every case.