One of the main challenges business owners face with succession planning is deciding what form of exit suits them best. Should they go for a trade sale which will be likely to guarantee a lump sum and may be eligible for an element of Entrepreneur’s Relief – but may come at a cost of relocation, restructure or redundancies to the businesses employees?
Or, could a business owner consider an approach that is more likely to safeguard their employees’ jobs and that could also drastically reduce their exposure to capital gains tax when they sell a controlling stake in the business?
The Chancellors announcement today of a Capital Gains Tax Exemption to business owners on the sale of shares that result in a controlling interest in their company being held by an employee ownership trust is welcome news for those of us campaigning for greater awareness of the benefits of employee ownership.
The new proposals will also benefit employee owners via
changes to the income tax regime on bonuses paid to employees of companies that
are indirectly employee owned, and changes to thresholds on key
incentivised share plans.
This removes one of the last big barriers facing advocates of employee ownership as a succession option.
Previously, the Capital Gains regime in Britain had not made any distinction between a business sold for employee ownership and a business sold to another business purely for profit. A high level of employee ownership and engagement has been proven through various studies to increase the innovation and productivity within a business. The new exemption recognises this and now dangles a very enticing carrot in front of business owners who were previously unconvinced of the benefits.
At the Wales Co-operative Centre, we are grateful for the support we have received from both Welsh Government and through European Funding to promote and implement employee ownership in Wales. These new measures compliment the work we are already doing and should lead to a marked increase in indigenous employee owned business in Wales over the next few years.
For further information on how the Wales Co-operative Centre can help business owners to assess their companies’ suitability for conversion to employee ownership, visit the website www.walescooperative.org or contact 03001115050.
Rhian Edwards is manager of the Welsh Government and European Regional Development Fund succession project at the Wales Co-operative Centre.