Tax fears prompt early business exits: What our research reveals

Key finding of our report

Our research of entrepreneurs found that a notable 65% of respondents indicated that the fear of impending tax increases prompted them to sell their businesses sooner than intended. This statistic underscores the profound impact that tax policy and its uncertainties can have on entrepreneurial decision-making.

Why entrepreneurs fear tax rises

Entrepreneurs are naturally forward-looking, often planning for future growth, but impending tax changes can shift their focus from expansion to preservation. When taxes rise – especially capital gains tax or corporation tax – the potential return on selling a business diminishes. Entrepreneurs may feel they are better off exiting sooner, under more favourable tax conditions, rather than risking a higher tax burden later.

There are three key concerns:

1. Increased tax liability

Rising taxes could significantly reduce the proceeds from a business sale, eroding years of hard work and investment.

2. Regulatory uncertainty

Changing tax policies often come with uncertainty. Entrepreneurs would rather sell under known conditions than gamble on future changes.

3. Market timing

Some fear that waiting too long could result in market or economic shifts that further devalue their businesses, especially if higher taxes lead to reduced investor confidence.

Implications for entrepreneurs

For entrepreneurs, the fear of tax rises is a clear signal to assess their exit strategies with greater urgency. However, selling a business prematurely can also mean leaving potential growth on the table. It is essential for entrepreneurs to adopt a balanced, well-informed approach to decision-making.

Here are key strategies for entrepreneurs and their advisers to consider:

1. Stay informed and plan ahead

Tax laws can change quickly, and being caught off guard can be costly. Entrepreneurs should regularly consult with tax professionals and financial advisers to stay updated on policy shifts. 

A tax adviser can model potential scenarios for future tax changes and the resulting financial impact on your business sale. By understanding the different outcomes, you can time your exit more strategically.

2. Consider alternative exit options

Selling outright isn’t the only way to exit a business. If you're concerned about tax rises, consider whether a partial sale or bringing in new investors could allow you to reduce risk while still maintaining some stake in your business. These options could allow for greater flexibility and may result in more favourable tax treatment depending on how the deal is structured.

3. Involve a wealth planner early on

For entrepreneurs looking to transition out of their business, we recommend consulting with a wealth planner well in advance for advice on how to plan, manage, and structure the personal wealth from an exit.

We can also introduce you to specialist tax advisers and accountants who will be able to discuss sale options such as employee stock ownership plans and trusts, that can reduce the immediate tax burden while facilitating a smoother transition of ownership.

Paul Clifton, Wealth Planning Director:

“It’s important to plan for the future. Not only could this help to maximise the net return, but also help you understand the lifestyle you can expect after the sale, using cashflow modelling.”

Being proactive in uncertain times

The fear of impending tax rises is a reality that many entrepreneurs are grappling with. As the data shows, this fear is driving business owners to consider selling their businesses earlier than planned. However, with the right strategies in place, entrepreneurs don’t have to rush their exit. 

By staying informed, considering alternative options, and seeking professional advice, entrepreneurs can make better-informed decisions that align with both their financial goals and tax realities.