UK Entrepreneurs Accelerate Business Sales Ahead of Labour Tax Increases

British entrepreneurs have significantly intensified efforts to divest their businesses in response to impending tax increases introduced by the Labour Government, with recent data revealing a substantial uptick in deal-making activity across the private equity landscape.

According to figures from Palladium Digital, a private equity consultancy, the volume of founder-led businesses pursuing institutional investment has surged by 30 per cent in the periods immediately preceding and following the November Budget. Concurrently, due diligence requests for potential acquisitions have risen by 20 per cent during the final quarter, signalling heightened interest from private equity funds evaluating UK targets.

The catalyst for this accelerated transaction activity centres on substantial modifications to Business Asset Disposal Relief, the tax provision previously known as Entrepreneurs’ Relief. This mechanism historically enabled business founders to benefit from a preferential Capital Gains Tax rate of 10 per cent upon disposal of their enterprises or assets, representing a considerable advantage over the standard 24 per cent rate applicable to capital gains.

The Labour administration initially elevated this preferential rate to 14 per cent earlier in 2025, with Chancellor Rachel Reeves subsequently announcing a further increase to 18 per cent scheduled for implementation in April 2026. These successive adjustments have compressed the timeframe within which entrepreneurs can optimise their tax position, prompting a rush to complete transactions before the spring deadline.

James Prebble, chief executive of Palladium Digital, characterised the current market environment as witnessing an “avalanche of deals” as both sellers and buyers attempt to finalise agreements ahead of the April tax changes. Prebble noted that whilst asset acquisition prices have remained stable, the cost of capital has escalated substantially. The tax advantages historically enjoyed by private equity firms have diminished progressively, fundamentally altering the economics of leveraged transactions.

The phenomenon extends beyond immediate tax considerations to reflect broader structural challenges facing British enterprises. Prebble argued that numerous publicly listed UK companies suffer from organisational inefficiencies and excessive bureaucratic processes that impede innovation and responsiveness. He suggested that the layers of approval required before implementing strategic initiatives create significant operational friction, particularly in technology-intensive sectors.

This vulnerability has attracted opportunistic acquirers, particularly US private equity firms, which Prebble suggested “could smell bargains” in the current market. These international investors identify UK businesses with strong underlying products or services that could benefit from operational streamlining and technological optimisation, potentially delivering substantial returns through post-acquisition improvements.

The transaction surge coincides with a confluence of cost pressures confronting British businesses. Recent months have seen employers grappling with elevated National Insurance contributions, inflation-exceeding increases to minimum wage requirements, persistently high energy costs, and augmented business rates. These cumulative burdens have intensified pressure on profit margins and contributed to a more challenging operating environment.

Antony Walker, deputy chief executive of TechUK, responded to the Budget by highlighting that personal tax modifications continue to increase both the costs and complexities associated with UK employment. He emphasised that changes to business rates, combined with the Government’s failure to address energy cost concerns, place additional strain on digital infrastructure providers.

The London Stock Exchange confronts ongoing difficulties stemming from high-profile departures, including the acquisitions of Darktrace and Alphawave by American competitors, whilst several companies have opted to relocate their primary listings to New York. The current wave of entrepreneurial exits risks exacerbating concerns about a broader exodus of innovative enterprises from British markets.

Whilst the dealmaking acceleration proves particularly pronounced among entrepreneurs and start-ups, similar trends have emerged in corporate finance more broadly. Data from M&A advisory firm PCB Partners indicates that businesses seeking to execute transactions have increased by 25 per cent during the current quarter, suggesting the tax-driven urgency extends across the enterprise spectrum.

The Treasury declined to provide comment on the reported surge in business disposals and the associated competitive implications for the UK economy. The developments raise questions about whether the increased tax revenues generated by higher Capital Gains Tax rates will offset potential longer-term costs associated with reduced entrepreneurial activity and business formation in Britain.