Capital Gains Tax hike – Act now to avoid significant lost value
President Obama is set to use his State of the Union address – his largest television audience of the year – to propose significant tax increases, which will largely affect the wealthiest Americans.
Having already raised the capital gains rate from 15% to 20%, with long term capital gains currently subject to an additional 3.8%, the President is set to propose further increasing this to 28% in order to generate additional revenue to fund new tax credits and cost-saving measures for middle-class taxpayers.
Naturally, this increase will significantly affect business owners, particularly those considering selling, with such a large jump in CGT set to impact on net proceeds from a sale.
With the proposal likely to benefit middle-class Americans, it sets the Republican controlled Congress a dilemma: side with the wealthy minority or the majority of the American public?
Factor in the looming 2016 Presidential election and the likelihood of the proposal being pushed through seems strong.
The M&A industry currently favors selling parties, with a significant increase in buyers returning to the market backed by large sums of unspent cash. In the last 12 months, buyers have been met with a shortage of strong businesses and have become conditioned to parting with inflated sums in order to secure their chosen targets.
With more sellers set to enter the market in the short term, due to the expected influx of baby boomer retirees, along with business owners looking to avoid the proposed CGT increase, the balance of power in the M&A market could soon shift toward the buyer.
So what advice can we offer business owners considering a sale in the short to medium term?
The answer is simple: ACT NOW.