The prospect of increased capital gains tax under a potential Labour government has caused many UK business owners to accelerate their plans to sell.
This surge is evident in the recent spike in mergers and acquisitions, rising by 71% in just the first quarter.
Fear of Tax Hikes
Businesses across Britain are bracing for potential tax hikes under Labour’s leadership. This fear has driven a noticeable uptick in sales activity. According to Lubbock Fine, there were 855 deals completed by the end of Q1, marking a staggering 71% increase.
The anticipation of higher capital gains tax is prompting entrepreneurs to expedite their exit strategies. Many are keen to sell before Rachel Reeves, the new chancellor, announces her budget in the autumn.
Impact on Entrepreneurs
Stephen Banks from Lubbock Fine highlighted the chief concern among business owners. A rise in capital gains tax would greatly affect the post-sale earnings entrepreneurs rely on for retirement.
Banks pointed out that business asset disposal relief might also be reduced, which previously allowed owners to sell sizable stakes at lower tax rates.
This relief suffered significant cuts in 2020, already raising taxes on sales. Consequently, many are hastening their sales to avoid potential further increases.
Market Dynamics
Improved bank financing has made borrowing easier, leading to more competitive bidding for businesses.
Additionally, lower inflation has instilled confidence in the financial markets, contributing to the surge in transactions.
It’s clear that business owners don’t want to be caught off guard by new tax policies. Many deals in negotiation are being fast-tracked to completion. Entrepreneurs see their post-tax earnings as crucial for their future financial security.
Junior Stock Market Concerns
While mergers and acquisitions are booming, London’s junior stock market, Aim, faces challenges.
UHY Hacker Young’s research shows a significant drop in listed companies. Currently, 722 small-cap companies are on Aim, the lowest since 2002.
The number of companies has plummeted from a high of 1,694 in 2007, and 80 companies delisted in the last 12 months alone.
Regulatory Burdens
Colin Wright of UHY Hacker Young pinpointed the regulatory burdens of listing in London as a major hurdle.
He suggested that some growth companies prefer listing in the US or Europe due to these restrictions.
This regulatory weight has also led to a drop in initial public offerings (IPOs), with only eight IPOs last year compared to 58 the previous year.
Future Uncertainty
Business owners are caught in a race against time to finalise deals before potential tax hikes take effect.
The swift activity in the mergers and acquisitions landscape underscores the anxiety around Labour’s upcoming tax policies.
As these sales rapidly close, the broader implications for the UK’s business environment remain to be seen.
The anticipation of Labour’s tax policies is reshaping the UK’s business landscape.
Business owners are rushing to sell, driven by the need to secure their financial futures before potential tax increases.
Whether this trend will stabilise or continue depends heavily on the policies that will unfold in the coming months.