How the Autumn Budget could shake up private markets
The upcoming Autumn Budget has been sparking debate across the UK economy for several weeks, largely due to leaks. The rumoured measures, from a possible exit tax (which thankfully now looks to have been abandoned) to changes to capital gains tax and pension rules, could reshape the landscape for investors, fund managers, and entrepreneurs alike. With the government looking to balance competitiveness with fairness, overburdening businesses and investors in private markets could ultimately backfire, hindering the UK’s position as a leading home for private capital.
It is important to compare how the market is reacting to this year’s Budget with how it responded to last year's. As a law firm, the run-up to the 2024 Budget sparked an extremely busy period for our firm, as many moved quickly to complete deals ahead of the Chancellor’s speech. The reasoning behind this was the rumoured jump in CGT, which did materialise (the headline rate is now 24%).
This same frenzy of activity has not materialised this year, with most market players instead adopting a wait-and-see approach until the Budget has officially passed. However, almost every UK M&A lawyer will have been under pressure to close deals in the last days and weeks. While it is encouraging to see that founders and business owners are not making decisions guided by panic, this market stagnation remains unfavourable to growth. Business leaders should be able to act with confidence, and what we need now, more than ever, is absolute stability to allow them to do so. The best outcome from this Budget for UK businesses would ultimately be no significant changes.
When evaluating the attractiveness of the UK as a base of operations, we often see HNWIs and business owners considering all relevant taxes and other factors together, including the application of relevant reliefs and the taxation of their businesses and properties, rather than individual taxes in isolation. Before coming to the UK or moving abroad, there is often consideration for less tangible factors such as language, the availability of good schools, transport connections and leisure activities (such as sports and the arts). Moving offshore to save £x million may seem attractive, but if you and your spouse/family are not happy there and you cannot hire the right people to run your business, the savings can turn out to be an expensive exercise.
Business Asset Disposal Relief (BADR) has been eroded to the point that it is difficult to justify it serving its intended purpose of incentivising entrepreneurship. We do not believe this government will reverse recent changes to BADR, and we would not be surprised if it were removed altogether, despite the message this sends to business owners. Looking at the headline rate of Capital Gains Tax as the Laffer Curve suggests, increasing tax rates beyond a certain level becomes self-defeating, actually reducing the overall tax take, something Parliament and HM Treasury are well aware of.
Despite one of the longest buildups to an Autumn Budget, as always, no one outside of the Chancellor's circle of trust knows what’s in and what’s out (with possibly some decisions to be made on Budget morning itself). Certain Chancellors in the past were notorious for keeping their Budget proposals even from the Prime Minister. Is the current Chancellor following past form?
The private markets are waiting, not in panic like last year, but in a weary, unproductive holding pattern. The government has a choice: provide the absolute stability and clear confidence that businesses are crying out for, or risk another politically motivated 'tax raid' that cripples investment and pushes capital offshore.
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