As the potential for increased capital gains tax looms under a Labour government, UK business owners are hastening to sell their companies. Key developments include:
- The number of mergers and acquisitions surged by 71% by the end of the first quarter of 2024.
- Business owners are worried about capital gains tax increases under the prospective Labour budget.
- Entrepreneurs are expediting sales due to reduced business asset disposal relief.
- Improved bank financing and falling inflation are further driving business sales.
- The decline in the number of companies on London’s junior stock market raises additional concerns.
According to accountancy firm Lubbock Fine, the number of mergers and acquisitions involving both public and private companies in Britain soared by 71% to 855 deals by the end of the first quarter. This increase in activity is largely attributed to entrepreneurs selling their businesses ahead of Labour’s anticipated tax hikes. The new chancellor, Rachel Reeves, is expected to announce her first budget this autumn, heightening anxiety among business owners about potential capital gains tax increases.
Stephen Banks, a partner at Lubbock Fine, emphasised the concern among business owners regarding potential increases in capital gains tax following the sale of their businesses. Moreover, there is apprehension that Labour might reduce business asset disposal relief, which allows owners of more than 5% of a company to sell their stake at a lower tax rate. This relief, significantly curtailed in 2020, has already led to higher taxes on business sales, prompting many entrepreneurs to accelerate their exit plans. Banks noted, ‘It’s clear that business owners who were planning to sell have accelerated their timelines. Deals already in negotiation are being fast-tracked to completion, as no one wants to be caught off guard by a new government’s tax policies. Many entrepreneurs rely on the post-tax earnings from their business sales for their retirement.’
Additionally, improved access to financing from banks has resulted in more competitive bidding for businesses. The decline in inflation has also boosted confidence in the City, encouraging more sales.
Separate research by UHY Hacker Young reveals a worrying trend on London’s junior stock market, Aim. The number of companies listed on Aim has fallen to its lowest level in over two decades, with 80 companies delisting in the 12 months leading up to the end of June, bringing the total number of small-cap companies to 722. This is a significant drop from the peak of 1,694 in June 2007. Colin Wright, partner and group chairman at UHY Hacker Young, acknowledged that Aim has struggled with the perception that growth companies might fare better listing in the United States or other parts of Europe. He also emphasised the need to relax some of the regulatory burdens associated with listing on both London’s junior and main markets.
The decline in the number of companies listed on Aim coincides with a notable drop in initial public offerings. Only eight IPOs occurred last year, compared to 58 the previous year. As business owners rush to finalise sales ahead of potential tax changes, the landscape of mergers and acquisitions in the UK is experiencing a significant and rapid transformation.
In summary, the looming prospect of tax increases under a Labour government is driving substantial changes in the UK business landscape, particularly in mergers and acquisitions.
