The recent budget announcement marks a pivotal moment for UK entrepreneurs, especially those navigating the complexities of growth within small and medium enterprises (SMEs). There are both pros and cons, and I’ve seen opinion on both sides across socials. 

With new tax adjustments, regulatory shifts, and targeted support for sectors like housing and even SMEs, this year’s budget presents a mix of challenges and some potential opportunities. As business leaders, our mission is to adapt, innovate, and focus on the factors within our control. 

I urge you not to resort to the blame game, as this doesn’t lead to successful outcomes. Embracing change, even when it feels like an uphill climb, is the powerful strategy in uncertain times. 

Resilience and Innovation in the Face of Change

For founders and business owners, resilience isn’t a choice but a must. 

The budget introduces elements like rises in National Insurance and the living wage. While the living wage needs to rise to account for the recently outlandish inflation rates, profit margins may indeed be tightened as a result. 

Our challenge – effectively this is a call to reassess operational efficiency and explore innovative ways to maintain growth. 

The message is clear: rather than focusing on setbacks, let’s lean into the challenges by strengthening core offerings, building loyal customer bases, and enhancing operational adaptability. 

Business Implications 

Higher payroll costs, brought on by the National Insurance and living wage increases, underscore the importance of optimising team efficiency and creating an appealing, competitive workplace. For some SMEs, this may be the time to explore automation solutions, restructure team dynamics, or even consider flexible working arrangements that optimise costs without sacrificing productivity. As James Watt (CEO of Brewdog) said after the budget “To every founder, dreamer, and business owner out there – this is the moment to sharpen your edge, to create something so good that it’s undeniable.” 

Additionally, the budget’s continued focus on sustainable growth is a signal to explore more efficient practices, especially for businesses whose environmental footprint is closely watched by consumers.

Implications for Property People 

For the property sector, this budget brings notable changes and expected challenges. 

Increased stamp duty on second homes and investment properties moves from 3% to 5%. Anyone on the road to a purchase should renegotiate, as the bottom line is what counts, and this alone is an indicator of the reason behind the move. Prices for homeowners need to be affordable. 

The policy also aims to balance supply, potentially cooling speculative investment while aiding first-time buyers and those relocating. 

Meanwhile, the additional investment in affordable housing, including support for the Build to Rent sector, provides an opening for those with a focus on long-term property development and investment. For property business owners, this may be a moment to rethink that growing portfolio, directing your efforts toward models aligned with government-backed initiatives and guaranteed rental income. 

While it’s a shift, there’s an advantage here: those poised to move with these new market dynamics stand to find stability and growth.

A New Paradigm for Succession 

Significant adjustments to Inheritance Tax (IHT) on pensions introduce new considerations for founders planning for succession. For businesses structured around family inheritance or long-term wealth generation, these changes could alter future planning strategies. Pensions are now subject to IHT, and depending on the age of death also income tax, which could mean a larger tax burden on estates and a reduced legacy for successors where the more wealthy are involved. 

The pension changes feel like a very bold move from Rachel Reeves. Calculating a maximum tax payout at 67%, it may tempt many to move to somewhere with less income tax, if perhaps less free in other areas of life. There are a good many tax havens vying for your attention at the present moment, but you might reflect that the UK came top in the world this month in Ray Dalio's global happiness index. 

For business owners staying in our beloved UK, re-evaluating tax efficiencies and safeguarding future wealth is never a bad idea. A robust financial plan should consider alternative vehicles for legacy and succession. 

Business Asset Disposal Relief and Capital Gains Tax Changes

The ‘less than expected’ stance for ER and CGT sums up Rachel’s move in this budget. Labour led with a cry that they would destroy our lives, and in reality the result isn’t as bad as threatened. An interesting piece of SPIN, albeit I think the amount of social bashing I saw may have an adverse lasting effect for many and lose them votes. So let’s take a look at each. 

In a nod to small and medium-sized enterprises, the budget maintains the Business Asset Disposal Relief (BADR) intact, though it increases from 10% to 14%. This provision, aimed at entrepreneurs selling their businesses, means founders can still benefit from a reduced tax rate on gains up to £1 million. 

The increase does signal a tightening stance, albeit not as serious as the one floated. For many business owners considering a future sale or succession plan, this increase calls for careful timing and strategic tax planning, especially as capital gains tax (CGT) rates on property investment have also seen a lift. 

The CGT rate on secondary properties now rises from 10% to 18% (lower rate) and from 20% to 24% (higher rate). While this is also not the sweeping change some expected, it emphasises the need us to stay nimble. For those with diversified assets, you might be tempted to re-evaluate long-term investment strategies, with an eye on tax efficiency. Plus ça change. 

A Call to Adapt, Innovate, and Collaborate 

The budget highlights a recurring theme about which I have recently been thinking a good deal: adaptation. 

For UK founders, SME owners and investors, the economic landscape demands agility, innovation, and a focus on collective strength. By sharpening our approach, from succession planning to investment recalibration, and especially by leaning into collaboration and helping each other, we can foster resilience in a shifting economic environment. 

Ultimately, this budget is a wake up call - thriving amidst new policies and fiscal demands requires both an entrepreneurial spirit and a proactive approach to change. 

This is a moment for bold action and strategic foresight - let’s make the most of it. 

Ed Fowkes

October 2024