Tax hike ‘could trigger MBOs’

THE new 50% income tax rate for high earners could trigger a wave of management buy-outs as owner-managers seek to avoid the tax.

That’s according to a partner at the corporate finance adviser Clearwater who thinks many entrepreneurs will be keen to sell up before the increase is introduced in April.

The new top rate, which was flagged up in April’s Budget, affects those earning £150,000 or more.

Mike Reeves, a partner at Manchester-based Clearwater said: “Those who were considering an exit in the near future may choose to sell there and then rather than await a full market recovery.

“Given the high levels of national debt and the government’s need to raise more money from taxes, some may also worry that capital gains tax may rise and if they wait too long to sell, they may end up paying more tax on the proceeds.”

He added: “The new tax rate and the threat of higher capital taxes will trigger a round of owner manager sales and will be one of the key drivers of deals in 2010.”

However, Mr Reeves also said some vendors will be reluctant to take part in a formal sales process at a time when many businesses on the market are in distress. He said owner-managers were looking for “subtler” ways of concluding a sale.