In last year’s October budget, the government announced several changes to the UK tax regime, most of which were to come into force at the beginning of April 2025.
What changes were announced?
The changes announced could impact succession planning in a variety of ways, and this is just as true for vets as for other business owners. Key changes announced by the Labour government covered significant changes to both Business Asset Disposal Relief (BADR) and rates for Capital Gains Tax (CGT). These include:
- BADR remains at £1 million, but the 10 percent tax rate will be increasing to 14 percent from 6 April 2025 and up to 18 percent from 6 April 2026
- The main rate of CGT is increasing from 20 percent to 24 percent and the lower rate is increasing from 10 percent to 18 percent for any qualifying sales on or after 30 October 2024
In addition to these changes, the budget also made changes to employee-owned trusts (EOTs), making this a potentially attractive route for practice owners looking to exit. Employee-owned trusts, or employee-ownership trusts, allow workers to indirectly buy the company from shareholders without having to use their own funds. This creates an “instant” buyer and is often a consideration when taking succession planning into account.
Employee-owned trusts, or employee-ownership trusts, allow workers to indirectly buy the company from shareholders without having to use their own funds
We have definitely seen an increase in interest in these structures within the veterinary space. That said, there is still a great deal of misconception about what these are and how much control employees will have in the practice. It is also worth noting that if this structure is adopted, it is not appropriate for those looking for a quick solution, and practice owners may not see their full value released for 10 to 15 years following the implementation of this structure.
With those who have not yet secured a deal with a third party, we have seen many of those vet practice owners reconsider selling to a third party as a means to exit, and instead considering other ways to “pass the practice on”.
What is succession planning and what are the benefits?
Succession planning involves deciding what will happen to your business in the future and helps your business to continue to operate when a significant change occurs: in particular, when an owner wishes to exit.
For practice owners, succession planning also allows for you and your practice to prepare for the unexpected and provide you with more clarity surrounding any retirement plans.
We recommend having an exit plan in mind, regardless of whether you are considering an exit. This can be updated and adapted as circumstances change, but it allows all interested parties to understand the intentions of others and set out mechanisms to allow for a straightforward exit.
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What exit options are available?
Whether you are a sole trader, own a company or are a partner in a partnership, you can create a path for exit by:
- Introducing key personnel to take over the ownership structure – either through an EOT structure or otherwise
- Transferring your interest to other parties if it is held jointly
- Finding an unrelated third party who is willing to acquire the business
- Winding up the business
The most common way businesses are owned is through a limited company or a partnership. Companies and partnerships are two very distinct legal entities and, while the end result will be the same, there are different legal processes you must go through to achieve an exit.
If you own the practice through a company, it is important to ensure that the provisions set out in the articles of association and any shareholders’ or investment agreement are adhered to when it comes to transferring your interest. This is the case whether you transfer to another member or to a third party.
Similarly, if you are in partnership with others, you need to ensure that the steps set out in a partnership agreement are adhered to with any transfer. This will be particularly crucial if you own the business with others and are looking to transfer your interest to a third party.
Final thoughts
Exit strategies are an important facet of owning a business. However you look to pass your practice on, you should consider tax implications and engage appropriate advisors throughout the process.
