With national debt now at an eye watering £2.1 trillion, tax rises are back on the agenda. Winston Churchill wrote that:

"The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing."

One would not have been surprised to see Rishi Sunak delivering his recent Budget wearing a pair of noise cancelling earphones as he starts the painful task of rebuilding the public finances.

For entrepreneurs looking to sell their businesses, Capital Gains tax (CGT) is of particular interest. Ahead of the Budget there was talk that Entrepreneurs' Relief would be abolished and that the government is set to equalise the rate of CGT levied on business sales (currently 20% for higher taxpayers) with the marginal rate of income tax (currently 45%).

The seeds were shown in November 2020 when the Office of Tax Simplification published a report concluding that the disparity in rates between Capital Gains Tax and Income Tax can distort business and family decision-making and creates an incentive for taxpayers to arrange their affairs in ways that effectively re-characterise income as capital gains.

Equalisation would mean that an entrepreneur with a strong view on how much they want for their business would have to reduce their expectations or accept the risk of holding the company for a few more years until profit growth outweighed the impact of the greater tax bill.

Whilst Entrepreneurs' Relief has been made less generous in recent years I cannot recall a time when the fear of wholesale change to CGT has dominated the M&A conversation quite so much. It ultimately drove a mini-boom in deal volumes during the first few weeks of this year as owners desperately tried to sell before the 3 March Budget.

For those who did not manage to complete a sale, it was a relief that the Chancellor decided to keep CGT unchanged.  However, on 23 March the Government is set to publish a series of tax consultation documents and if, as some expect, they confirm the direction of travel on CGT then the scramble to sell will start again.

Concerned entrepreneurs are likely to have a short window before change comes into effect.

The Autumn Statement is likely to be in late October / early  November and the next Budget in March 2022. Just enough time to plan and organise a sale effectively.

So, is the risk real – is reform coming?

If you accept that higher taxes will need to play some part in helping to restore the nation’s finances then CGT must be in the cross hairs.  However, it is a relatively small contributor to the Treasury. In 2018/19, CGT contributed £9.5bn – just 2% of the total tax take and affected round 276,000 people, which is less than 1% of the number of people who paid income tax.

So, CGT doesn’t contribute very much relatively speaking and its supporters argue that heavy handed reform may reduce the incentives for entrepreneurs to start up new businesses.

Against that background, it is perhaps surprising that the government is not focusing on the Big Three - income tax, NI and VAT - which together contribute a massive 82% of the tax take.

The Budget did see the Chancellor freeze income tax thresholds (raising an estimated £8 billion) but broader changes are politically fraught given that the Conservatives pledged not to increase the Big Three taxes in their 2019 election manifesto.

Ex-Chancellor Kenneth Clarke recently suggested that the electorate would forgive Boris Johnson for backtracking given the unforeseen nature of Covid.  However, the impact on the electoral fortunes of Nick Clegg’s Liberal Democrats following their abandonment of a 2010 pledge on tuition fees will not be lost on No 10.

CGT reform is therefore likely to be about politics as much as economics.

Indeed, there is a broader political and philosophical argument about CGT reform that dovetails with the government’s desire to level up the country and carve out a future for Britain on the world stage.  Supporters of the status quo argue low CGT rewards risk taking but others say it helps make rich people richer.  They say the government should scrap CGT reliefs and put in place generous new incentives to motivate the next generation of risk takers to invest capital into ventures that lead the UK’s response to the big issues of our time: social care, social housing, technical education, AI and climate change.

What was once anathema to a Conservative 'low tax' mindset is likely to be doctrine very soon.  CGT reform seems inevitable and if you own a business it is time to sit up and take note.

One suspects the government is prepared to put up with the hissing of the goose in the short term in the hope that the strategic plucking of feathers will eventually lead to it laying the golden egg.