Should entrepreneurs be worried about a change in Capital Gains Tax after the next election?

There have been rumours for a long time about Capital Gains rate changes, with deals having been completed or accelerated on this basis, but apart from the reduction on Entrepreneurs Relief (from £10m to £1m allowance), nothing has been forthcoming. There was no mention in the last budget last week. So will there be a change?

As per the latest budget Conservative government have gone quiet on raising capital gains tax. However, it isn't that long until the next election; at the time of writing, Labour are 4/7 to be in power next year, and the expectation there is that the long-mooted changes to Capital Gains tax will be changed with a turn of government. The latest election date is January 2025, but in reality, it is most likely to be next summer, so these changes may or may not be implemented as early as Autumn 2024.

What would it mean for the M&A Market if a new government were to walk into the Treasury next year?

What would it mean for the M&A Market if a new government were to walk into the Treasury next year? The answer isn't crystal clear yet. Labour is keeping tight-lipped when it comes to their headline fiscal policy pledges, which leaves speculation as to whether planned rises to Capital Gains rates might actually take place later than expected. Many are assuming that the Shadow Chancellor will commit to the theme of accountable budgeting and fiscal responsibility if she were to walk into No. 11, implying a cautionary approach to tax changes, making a mass rush of M&A deals before election day less likely. On the other hand, she has previously committed to raising Capital Gains rates, saying she “wants to abolish the anomaly that people pay capital gains tax at 28 per cent rather than at the same rate as income tax”. While there is time, it is worth considering the magnitude of these changes could be very large, potentially aligning the rates from 20% to income tax rates of 45%. On a £50m exit that could equate to £12.5m of tax.

Overall, those in the world of M&A should be aware of any potential changes to Capital Gains Tax after the next election, and those thinking of exiting thinking about timing as we move forward.