Budget: Broking M&A could be affected by changes to Entrepreneurs’ Relief

What might the Budget have in store for brokers? Close Brothers’ Paul Trail considers the possibilities. 

There are three key areas where the Budget could hit brokers when it is delivered by Chancellor Rishi Sunak tomorrow. 

These are the areas I will be keeping an eye on: 

• Brokers could be challenged by changes to capital gains tax 

• Reform of Entrepreneur’s Relief could spur new wave of broking M&A 

• Commercial broking holds up during pandemic thanks to government policy 

Any changes to business assets disposal relief (entrepreneurs tax relief) in the March Budget will accelerate the number of brokers selling up and leaving the profession.

Capital Gains and M&A 

The combination of ever-increasing regulation and potential changes to capital gains tax (CGT) for entrepreneurs, risk tipping independents over the edge, leading to a big jump in deal activity, with consolidators the major beneficiaries. 

Although many brokers are still undecided, discussions I’ve been having with broking contacts convince me that many would have little hesitation in throwing in the towel before a new CGT regime was implemented. 

Currently, Entrepreneurs’ Relief reduces the amount of CGT on a disposal of qualifying business assets, subject to a lifetime limit. 

Brokers were key members of the entrepreneurial business community that government is relying on to kickstart the economy after the UK comes out of lockdown, not only as wealth creators in their own right, but also providing commercial insurance for UK businesses, especially in a hardening market where double-digit increases are the norm in many classes. 

Commercial 

The commercial broking sector has held up well during the pandemic, not least because insurance is compulsory and government policy to manage the pandemic, including furlough and the Coronavirus Business Interruption Loan Scheme (CBILS) scheme have enabled businesses to hold on to cash and keep trading. 

We saw a lot of increased demand for premium financing in March/April 2020, at the start of the lockdown, but demand levelled off later in the year after government support kicked in. As SMEs tend to renew their insurance at the end of their financial year, which is usually the end of March, the Budget announcement could have a positive impact on customer activity. 

I would urge brokers to ensure they have premium finance facilities in place to service the needs of brokers looking to spread the cost of their insurance, especially in light of the hard market, which is going to give many businesses a real shock when they come to renew. 

The commercial broking sector needs a period of certainty while we put the challenges of the last 12 months firmly behind us and regrow confidence in our industry. 

There are around 2,750 brokers in the UK (and Eire) and CBPF partners with 1,600 of them. 

Paul Trail is MD of Close Brothers Premium Finance