It’s been nineteen years since Labour last won a general election, and with the Conservatives trailing behind in the polls since May, Labour’s resounding win of 411 seats doesn’t come as a huge surprise.
The current rate of M&A activity is higher than it was in 2023, with over 400 deals in the UK completed in the first quarter of this year. From an insurance perspective, there were circa 160 broker sales last year with an estimated 164 predicted for 2024, the highest number in the general insurance sector. This has been fuelled by a significant increase in buyers with a number of active American players. When looking at financial services, research shows that around 50% of independent advice firms are considering a sale in the next two years, with succession planning a key feature in annual business plans.
With inflation rates having eased, commentators are predicting a potential improved deal environment for the remainder of the year. But, with a new government now in place and uncertainty around funding and tax implications, what does this mean for those in the middle of a sale, or considering one?
Tax
It is anticipated that Labour’s Chancellor, Rachel Reeves, will deliver her first budget in the second half of September or early October 2024 with the initial changes expected to concentrate on capital taxes (capital gains tax, inheritance tax) and perhaps pensions.
Labour’s manifesto was very careful in its wording about not increasing tax rates or introducing a wealth tax, but the silence was deafening regarding tax reliefs. For example, will the Business Asset Disposal Relief of £1m at 10% for qualifying gains be removed? Might the Chancellor seek to reduce or remove inheritance tax (IHT) reliefs such as Business Property Relief or perhaps scrap the tax-free lump sum for pensions?
Labour also plans to introduce rules on carried interest paid to private equity managers, ensuring it’s taxed as income rather than taxed as capital at a lower rate, although detail on rate and how it will work is yet to be disclosed.
What’s the best course of action?
David Morrison, Partner at EQ Accountants shares his key advice below…
If you are in the middle of a transaction, completion in early course should ‘bank’ the reliefs currently applying.
If you are considering a sale or other succession, the question is whether this can be done quickly? It’s likely that succession could be delivered but a sale process not yet started is unlikely to be completed by mid-September 2024.
It’s vital that you speak with your financial adviser to determine the best course of action for your pensions.
Future outlook
There are signs for a potential vibrant and steady M&A market, with research anticipating an acceleration of transactions over the next eight to ten weeks, and then perhaps a lull as the Chancellor’s programme becomes clear. Potential higher capital taxes may well derail disposals for a time, as sellers get used to a potential new regime which might affect their view of whether they can afford to sell or not.
In addition, Labour’s commitment to clean energy and green spending, with their plan to ‘make Britain a clean energy superpower’, could spark ESG related acquisitions. Resulting in larger corporations acquiring businesses with strong ESG propositions, in order to enhance their own credentials and offerings.
With any current or planned deal, we thoroughly recommend businesses seek professional advice as soon as possible to determine whether you can use the rules and reliefs currently applying. Failure to do so could be costly in the long run. If you have questions regarding the M&A market, a current transaction or would just like some free confidential advice don’t hesitate to contact our M&A consultants.
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