Fears of impending tax increases under a potential Labour government have spurred a significant surge in business sales, according to recent research.

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, as reported by accountancy firm Lubbock Fine.

The uptick in activity is largely attributed to entrepreneurs looking to sell their businesses before Labour’s anticipated tax hikes take effect. With Rachel Reeves, the new chancellor, set to announce her first budget this autumn, business owners are anxious about potential increases in capital gains tax.

Stephen Banks, a partner at Lubbock Fine, highlighted the concern among business owners about a potential rise in capital gains tax following the sale of their businesses. Additionally, 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 was significantly curtailed in 2020, leading to higher taxes on business sales and prompting many entrepreneurs to expedite their exit plans.

“It’s clear that business owners who were planning to sell have accelerated their timelines,” Banks noted. “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.”

Additional factors driving the increase in business sales include improved accessibility to financing from banks, which has led to more competitive bidding, and a decline in inflation, which has boosted confidence in the City.

Separate research by UHY Hacker Young, another accountancy group, reveals a concerning 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. This brings the total number of small-cap companies to 722, the lowest since 2002 and 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.

This decline in listed companies comes amid a notable drop in initial public offerings, with only eight IPOs occurring 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.

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Businesses rush to sell ahead of potential Labour tax hikes