Scotland's M&A market — tax changes and sector trends

Our corporate team handled transactions worth over £50 million in the weeks before the budget, with our Aberdeen office completing the final deal just eight minutes before the midnight deadline.

Now, we’re seeing more tax changes coming in April 2025 and beyond driving another wave of deals.

Tax changes shaping the mergers and acquisitions market

Several key tax reforms have been encouraging deal activity.

• Capital Gains Tax (CGT) increases — The UK Government raised CGT rates in October 2024, pushing up the basic rate from 10% to 18% and the higher rate from 20% to 24% for sales made after 30 October 2024. This led many business owners to rush through sales to secure lower rates.

• Business Asset Disposal Relief (BADR) — This increases from 10% to 14% from 6 April 2025 and then increases again to 18% from 6 April 2026. 

• Business Property Relief and Agricultural Property Relief — From 6 April 2026 the rate of relief (from inheritance tax) on such property will be reduced from 100% to 50% above the first £1million.

BADR used to be known as Entrepreneurs' Relief (ER), and I do wonder whether the change in terminology in 2020 was to soften the perception that changes to its structure is something of an attack on entrepreneurial spirit.

Start-ups come at great risk for those involved at the outset. Entrepreneurs tend to invest lots of money to grow their business, but with no guarantee of success. As such, ER — to a great extent — was a reward for investment: encouraging enterprise, employment and growth. 

That reward, however, is being eroded.

The lifetime limit for gains qualifying for ER was reduced from £10million to £1million in 2020. And now we have the rate charged on gains increasing.

Whereas the chancellor has said that there will be no more tax raids, the suspicion is that this position may be unsustainable. Thus, with BADR having already been a target for tax-raising, and with a lot of noise around previous budgets about the prospect of changes to BADR, there may still be potential to wring more cash out of the entrepreneur.

For example, and one that has been touted previously, could the limit for lifetime gains be reduced from £1million at some point?

The rate increases already announced, and the uncertain economic picture causing nervousness, may lead to exits being brought forward.

Additionally, the changes to APR and BPR may lead to some questioning the value of handing businesses over to the next generation. Would the beneficiaries be able to afford the inheritance tax bill without liquidating some of the business assets? Would a viable business be left? Perhaps the owner of a hotel would rather sell the business, obtain the benefit of BADR and gift cash to his or her children over time instead?

Again, the changing tax landscape may affect the deals market.

Spring Statement

Chancellor Rachel Reeves is scheduled to deliver the Spring Statement on 26 March 2025. A few reported policy changes could have several implications for Scotland's M&A market, including —

• Sector-specific opportunities — Increased defence spending may drive M&A activity in manufacturing and technology sectors, as companies position themselves to meet new demands.

• Regulatory adjustments — Simplifying financial regulations could make transaction processes smoother, benefiting businesses involved in M&A activities.

• Economic sentiment — Welfare spending cuts and changes to savings incentives may influence consumer confidence and spending, indirectly affecting sectors that rely on domestic consumption.

We will have to wait and see what comes.

Our deal activity

We have, however, seen strong deal activity across several key sectors —

• Construction — Ongoing infrastructure projects and supply chain consolidation continue to drive transactions. Businesses are joining forces to strengthen their market position and work more efficiently.

• Energy — The general shift to renewables is fuelling acquisitions in wind and green technology, and we are seeing deals where companies offer services to both renewables and oil and gas.

• Agriculture — Family-owned businesses in agriculture, but also generally, are restructuring to improve tax efficiency and plan for succession. We've advised on several deals where restructuring has helped owners reduce future inheritance tax bills.

Also notable, though, is the number of MBOs in recent times.

Part of the reason for that may be that the MBO team offers a ready exit. If the owner has identified the team as capable, chances are also that any funder – if required – would, too. And with the rush to beat tax changes, perhaps time spent marketing has in some cases been the trade-off. 

There certainly has been this rush. And no matter the dates for tax changes already in the diary, they will always seem to arrive sooner than you think.

Other changes may yet be teased and create the clamour we saw in the run-up to the Autumn Statements. With that in mind, businesses owners should be prepared for an exit, whenever that may be.

Preparing for an exit from your business

Any sale process can take time, but often parties spend the most time undergoing due diligence exercises. 

As a business owner you should ensure you keep comprehensive records, both financial and otherwise, available for review by prospective buyers. An efficient operation here will give a potential buyer confidence in the business generally. 

If you know of an issue within the business, fix it now. Don’t just put it off. A buyer will find it, and time spent trying to implement a solution at that time may mean missing a tax deadline.

At Ledingham Chalmers, we support business owners through every stage of the M&A process. Whether you're considering selling or buying a business, getting the right advice early can help you make the most of market opportunities. Please do get in touch if you want to discuss a matter.