What did the Budget do for valuations?

November 5, 2024

It was an interesting Budget and the ramifications for company valuations are huge.

I thought I would break down the key issues that have now arisen which will impact on  any one valuation exercise and also the volume of valuations that will now be needed.

CGT changes
Although CGT has risen, the delta is still wide enough between it and Income Tax that employee incentives work should continue relatively unscathed.  It is also worth remembering that this is likely to be a tax that a new government will reduce again when the economy is stronger. This is a very useful background article from the FT on the history of CGT Capital gains tax: a short history.

IHT – APR and BPR
This is the big one.  Tens if not hundreds of thousands of companies are now going to want to engage in more tax planning for IHT given the increase in tax HM Chancellor of the Exchequer is hoping to collect.   The sooner they get on with it the better!

There are numerous sensible and completely legitimate ways that business ownership can be organised so that UK shareholders only pay the tax that they owe, not a penny more, not a penny less. Did you know it is the law that citizens only need to pay what they legally owe?

We are already taking calls from the people who want to get on with it, but as you know we will always assist anyone who needs a valuation.

We can move fast; last week we completed our first 12-hour valuation report because the client wanted it done before the Budget. In this exercise our great team and the smart approach we take to conducting a valuation exercise were tested and delivered

In terms of what the Budget also means for valuations, here are a few thoughts:

• On valuations generally it will be the results of the US election rather than the Budget will have the most significant impact on valuations in the short to medium term as the performance of the US economy drives so many key economic indicators.
• However, as the UK moves to an economic model more akin to our European neighbours than the Singapore on Thames model, this may lead to downward pressure on UK equity valuations (both quoted and unquoted).
• If more entrepreneurs move to the US or elsewhere we may see lower volumes of scale-up opportunities based in the UK. However, it is possible that US and other acquirors will be opening their cheque books more frequently as they see our great private companies as bargains to be bought.
• The risk of more people leaving the UK and taking their wealth with them may hurt investment capacity which in turn may depress values in funding rounds as those left behind find themselves with more leverage.
• The strength or otherwise of the pound, interest rates and inflation will all as always weigh on valuations.  Now might be a good time to undertake transactions where a depressed price is an advantage.
• It is possible that the Reeves medicine prescribed in the Budget will cure the patient – if we can improve national infrastructure and hospitals, as well as healthcare and education, the UK will become a more attractive place to live and run a business in the medium to long term.  And I would not put it past the Government to be thinking about some tax cuts ahead of the next election.

So we will be taking care when valuing start-ups planning to explode in 2-3 years’ time.

In terms of impact on sector valuations:

• HM Government spending will provide a financial fillip to its UK suppliers.  We can expect to see resilience in valuations for companies that rely on the State for revenue.
• We have committed to more defence spending and, sadly, conflicts in other regions, both now and in the long-term, will lead to more opportunities for sectors where the UK has great skills such as defence technology and construction and infrastructure (including tech).
• Especially in the retail and entertainment sectors, we can expect to see depressed profitability for a while as companies work through the increases in Employers’ NI and to the Minimum Wage.
• HM Government’s continuing focus on AI is worth noting, but we will need to see more on the new Industrial strategy before the ramifications on the value of technology companies in this and other “exciting” sectors can be fully understood.
• The legal and accounting professions and those who serve them are going to boom – expect to see values rocket.

Do give us a call if you think we can help with some ideas on how to get the value right for both companies and shareholdings (or indeed other assets such as IP).