A significant increase in company sales by entrepreneurs in the United Kingdom is underway, driven by forthcoming capital gains tax changes set out by the Labour government. Amid the government’s proposed reductions in tax relief for entrepreneurs, founders are moving swiftly to sell businesses ahead of stricter tax measures coming into force.
Industry analysts report a notable rise in dealmaking activity, while private equity interest targets founder-led firms and start-ups. This heightened transactional environment emerges in the context of wider economic pressures, including concerns about competitiveness and regulatory burdens.
Escalating Deal Activity Among Founders
New data from Palladium Digital, a private equity advisory firm, indicates that the number of founder-led businesses seeking institutional investment increased by 30% in the lead-up to and following the government's November Budget.
Concurrently, due diligence requests for company acquisitions climbed by 20% in the last quarter as private equity funds sought opportunities ahead of anticipated tax changes.
Executives say these trends reflect efforts to complete exits before heightened capital gains tax rates take effect. Mergers and acquisitions advisers also report that corporate transactions overall have grown, with M&A advisory firm PCB Partners noting a 25% rise in businesses exploring deals during the same period.
Changes to Business Asset Disposal Relief
Business Asset Disposal Relief, previously known as Entrepreneurs’ Relief, has been a key mechanism allowing company founders to pay a reduced capital gains tax rate upon selling their businesses.
The relief previously offered a 10% tax rate on qualifying disposals, compared to the standard 24% rate. In recent months, the government increased this preferential rate to 14%, with a further rise to 18% scheduled for April.
These alterations have intensified urgency among business owners to finalise sales before the higher rate is implemented. These tax changes form part of broader fiscal reforms aimed at revising the treatment of wealth creation and share disposals, according to statements from Treasury representatives.
Private Equity and Market Dynamics
Private equity firms have intensified their focus on UK businesses facing transitional tax pressures. James Prebble, Chief Executive Officer at Palladium Digital, described an ‘avalanche of deals’ as buyers and sellers work rapidly to complete transactions before the new tax rules come into effect.
Prebble stated that while acquisition prices remain high, the increasing cost of capital and diminishing tax advantages are prompting both sellers and investors to act swiftly.
Private equity analysts note that US investment groups, in particular, are seeking value among British firms seen as underperforming but with underlying strengths that can be enhanced post-acquisition.
Wider Market and Regulatory Pressures
Beyond tax policy, UK businesses are also contending with rising operational costs. Increases in National Insurance contributions, higher minimum wage requirements, and persistent energy price volatility have added new financial pressures to the market.
Business leaders argue that these factors, combined with tax increases, could reduce the UK’s appeal for entrepreneurs and investors and potentially accelerate corporate relocations to international markets.
Reactions from Industry Leaders
Industry bodies and executives have expressed concern over the cumulative effect of recent government policies on the business environment. Antony Walker, Deputy Chief Executive of TechUK, said:
‘Personal tax changes mean that the costs and complexities of employing people in the UK are continuing to increase, while changes to business rates and a failure to address sky-high energy costs are putting more cost on digital infrastructure.’
Commentators also highlight that the London Stock Exchange faces ongoing challenges, with several prominent companies having been acquired by overseas rivals or choosing to shift listings abroad. Industry sources believe these trends may be intensified by the current tax and regulatory climate.
Final Summary
The UK is witnessing a surge in business sales and transactions as entrepreneurs and investors move decisively in anticipation of higher capital gains tax rates set by the Labour government.
The increase in activity is a response to changes in Business Asset Disposal Relief and wider regulatory and operational challenges. Industry leaders have voiced concerns about the cumulative pressures facing founders and the potential impact on the UK’s attractiveness as a base for business innovation and growth. The coming months will reveal whether these developments signify a temporary effect or a lasting shift in the domestic business landscape.
For those monitoring policy and market changes, digital tools such as the Pie app can assist with tracking developments in real time.
