Future agency mergers and acquisitions could be hit by tax hike

14 December 2020 | Renting

A warning has been issued by one of the most acquisitive letting agencies that future mergers and takeovers could be hit by a possible rise in Capital Gains Tax.

A recent report issued by the Office of Tax Simplification, requested by Chancellor Rishi Sunak, has considered an increase in CGT to align with current rates of income tax. 

The OTS report anticipates that this could bring an additional £14 billion into the Exchequer although the report notes “there would be significant behavioural effects, which would materially reduce this, including an impact on people’s willingness to dispose of assets and trigger a tax charge, increasing the extent to which Capital Gains Tax has a ‘lock in’ effect.”

Now the Leaders Romans Group – which has made a record number of branch acquisitions this year – is warning that such a CGT rise could hit the consolidation that has gone on amongst lettings agencies in recent times.

LRG says it will continue to place a major focus on mergers and acquisitions, but Matthew Light – the company’s director of mergers and acquisitions – warns that time is of the essence to complete transactions ahead of any CGT change.

This could be as soon as the spring 2021 Budget which – if it adopts the OTS suggestion – could see shareholders selling a business being taxed up to 45 per cent for a disposal, rather than at the current rate of up to 20 per cent.

Light says: “Such heavy taxes would of course play on the mind of those looking to complete transactions, and it is obviously extremely financially beneficial to do so before the proposed tax rate reform is potentially introduced. 

“We at LRG are still open to further acquisition opportunities and will of course explore viability ahead of next March, but depending on the proposed changes, time could be of the essence – even for businesses such as ours that can finalise deals quickly.”

Back in January LRG acquired Moginie James and then in March snapped up both Scott Fraser and Outlook Property; in October it acquired Lenwell.

All these were multi-branch independents and the acquisitions mean that over the course of 2020 LRG welcomed 200 new staff members, took on over 6,000 additional managed tenancies, added 20 new branches and expanded into new territories.

Matthew Light adds: “To have achieved such success, this year especially, is a testament to the skill and endeavour of the LRG team. It is a show of intent that the company places heavy importance on mergers and acquisitions, and will continue to do so, particularly regarding lettings and block management businesses.

“Adding nearly 200 more experienced and talented staff to the business is of huge benefit, as all of them boast local expertise of the geographies in which they operate. 

“This, combined with the expansion into new locations, feeds into LRG’s ethos of providing tenants and landlords with a service steeped in local knowledge. Above all, achieving a record number of branch acquisitions provides us with a great platform for future success, and positively highlights the growing reputation of the business.”

This post has originally been featured in Letting Agent Today.