Shaping up for the future
Mergers and Acquisitions activity is beginning to pick up at the national and international levels - as highlighted by Kraft Food's bid for Cadburys and Resolution's for Friends Provident. But local entrepreneurs haven't been idle either, taking steps to improve their balance sheets and businesses, especially where they plan to exit in the next three years or so.
For example, during the global credit crunch, we have worked and are working alongside many Finance Directors and HR management teams to secure better value for their employees and their companies in their Employee Benefits (EB) offerings. Too many firms are still paying too much for old heavily charged EB contracts. Undertaking an EB audit can be a good way of identifying valuable cost savings.
Local entrepreneurs and their tax advisers are also showing a greater appetite to carry out target funding exercises, with the aim of optimising their standard of living once they exit their businesses.
Many businesses have seen their returns from their cash deposits fall and companies and business owners are seeking to improve the returns on their investments, whilst maximising protection levels. Many entrepreneurs have moved to split their cash holdings between four or more banking licences in order to increase their protection levels under the Financial Services Compensation Scheme (FSCS) where deposits by individuals are protected up to £50,000.
Rising taxation in the UK is becoming more of a bugbear for entrepreneurs working long hours to create valuable businesses and employment.
The area of most concern, raised again and again by the public and especially by entrepreneurs, is the penal rate of Inheritance Tax (IHT), especially when this tax is all too often levied on funds which have already suffered high levels of taxation. Many countries, such as Australia, do not levy IHT, in order to attract entrepreneurial talent which can build businesses and increase employment opportunities.
While IHT mitigation used to be typically undertaken by people in their seventies and eighties, we are witnessing a greater appetite for people to start mitigating this tax in their forties and fifties. A typical entrepreneur who sells his company at 56 and has a life expectancy of 84 would have the ability, along with his spouse, to shelter eight nil rate bands between them, or a significant £2.6 million.
Given rising tax rates in the UK, with the highest rate of income tax moving to 50% in 2010/2011, VAT going back up to 17.5%, comments that Capital Gains Tax levels are likely to rise shortly, and IHT being levied at 40%, more and more business people are interested in taking steps to ensure that the proceeds of a lifetimes work can pass to people or charities of their choosing, rather than increasing a family's tax burden.
A version of this article by Adeline Christy, Kudos Director - Wealth Management, appeared in The Press and Journal on 19 October, 2009