Tax changes prompt potential for sell-offs

The UK PR industry could be set for a surge of market consolidation as a result of controversial tax changes announced last week by Chancellor Alistair Darling.

The Chancellor’s pre-Budget reforms of Capital Gains Tax have attracted the wrath of the private equity industry, leading business groups and trade unions.

Now, it has been described as a ‘worrying development’ for the PR industry. Acquisitive marketing group Freshwater UK warned the tax changes to Capital Gains Tax could convince agencies to sell early or face losing out on current tax bonuses.

The changes – specifically the removal of ‘taper relief’ –will mean agency shareholders could double their tax burden if they sell their firms after April.

Capital Gains Tax relief for unquoted or AIM-listed firms allows long-standing shareholders a red­uced ten per cent tax bill. With the removal of the relief, that will rise to 18 per cent, or more in line with inflation.

The PR market has been buoyant in the past two years and there are many good reasons to sell an agency, argued Freshwater director Edward Carter: ‘Such gains have been topped up by the ten per cent tax rate, but for most, this is set to double. The nest egg many agency owners may have been expecting will be significantly reduced.’

He added: ‘In the case of PR, entrepreneurs form the backbone of the industry, so this is a worrying development.’

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