How the 2025 budget will impact M&A activity

Budget 2025 landed with plenty of political noise, but if you’re buying or selling companies in the UK your real question is simpler: does this make deals easier, harder, or just…different?

Short answer: it’s not a “shock and awe” M&A budget, but there are some very real nudges that will influence how owners structure exits, how buyers model value, and how capital flows into UK deals over the next few years.

Below is a deep dive through an M&A lens – focused on practical implications for acquirers, sellers and investors in the UK mid-market.

1. The big picture: a high-tax, “stability first” backdrop

Budget 2025 (“Strong foundations, secure future”) continues the government’s strategy of high overall tax, targeted reliefs, and a strong emphasis on fiscal stability (HM Treasury, 2025). (GOV.UK)

A few key macro points that matter for M&A:

• The overall tax burden is projected to rise to around 38% of GDP, the highest on record (MoneyWeek, 2025; OBR, 2025). (MoneyWeek, 2025) (MoneyWeek)

• Growth is expected to be modest – roughly 1.5% for 2025, with weaker long-term productivity forecasts (OBR, 2025; NACFB, 2025). (OBR, 2025) (Office for Budget Responsibility)

• Personal tax thresholds remain frozen and various stealth tax rises are coming through the system, squeezing disposable incomes over time (MoneySavingExpert, 2025). (MoneySavingExpert, 2025) (MoneySavingExpert.com)

For dealmakers this means:

• No radical pro-growth shock that dramatically boosts valuations across the board.

• No new corporation tax hike either – the 25% rate is maintained, with government keen to keep calling it “the lowest in the G7” (Farrer & Co, 2025; HM Treasury, 2025). (Farrer & Co, 2025) (Farrer & Co.)

• A continued environment where distressed and succession-driven deals are likely to remain a core part of the market, as ageing owners and cost-pressured SMEs reassess their future.

In other words, the macro setting is one of stability with a heavy tax undertone – fertile ground for steady, strategy-driven M&A rather than frothy speculative deals.

2. Tax on exits: owners lose some sweetness, but not the whole dessert

2.1 Business Asset Disposal Relief (BADR): the clock is ticking from earlier budgets

Budget 2025 itself didn’t add fresh BADR shocks, but we’re now living with the consequences of the earlier phased increase in the rate. Business Asset Disposal Relief – the successor to Entrepreneurs’ Relief – is moving from an effective 10% rate on qualifying gains, to 14% from April 2025, and then 18% from April 2026 (WHN Solicitors, 2025). (WHN Solicitors, 2025) (WHN Solicitors)

For owner-managers selling shares in trading companies, this is a clear message:

• The tax-efficient window is gradually closing.

• There is a strong incentive for some to accelerate exits before April 2026 to lock in lower BADR rates.

Corporate advisers are already reporting heightened sell-side activity driven by retirement sales and concern about those rising effective CGT bills (WHN Solicitors, 2025). (WHN Solicitors, 2025) (WHN Solicitors)

From a buyer’s perspective, that can mean:

• A larger pipeline of vendors “looking to be gone within 12–18 months”, especially in owner-managed SMEs.

• Slightly more flexibility on price or structure from sellers whose primary driver is locking in a particular tax position rather than squeezing the last multiple turn out of negotiations.

2.2 Employee Ownership Trusts (EOTs): from 0% to an effective 12% CGT

One of the biggest direct Budget 2025 changes relevant to succession-driven M&A is the restriction of CGT relief on disposals to Employee Ownership Trusts.

Previously, qualifying sales to an EOT could benefit from 100% CGT relief – effectively a 0% tax rate on the gain. Budget 2025 cuts that to 50% relief from 26 November 2025, meaning half of the gain is now taxed at standard CGT rates, leading to an effective rate of around 12% overall for many higher-rate taxpayers (Grant Thornton, 2025; Saffery, 2025; HM Treasury, 2025). (Grant Thornton, 2025) (Grant Thornton UK)

Practical implications:

• EOTs remain attractive, but the “free lunch” is gone. They are now more of a mid-way option between a BADR-qualified trade sale and a full-rate CGT disposal, rather than an obviously superior route.

• Some owners who were leaning towards an EOT may now re-open conversations with trade buyers and private equity, especially if they can secure a stronger valuation or staged earn-out.

• For advisers, the EOT vs trade sale discussion becomes more nuanced: cultural legacy vs control vs tax, rather than tax overwhelmingly dominating.

Note: If you’re a buyer, this slightly reduces the competitive threat from EOTs, which sometimes took good assets off the market at attractive terms for insiders.

2.3 Other personal tax changes: dividends and investment income

Budget 2025 raises tax rates on dividend, rental and savings income, particularly for higher earners, while not changing headline CGT or inheritance tax rates (A&O Shearman, 2025; Farrer & Co, 2025; Redmayne Bentley, 2025). (A&O Shearman, 2025) (A&O Shearman)

For M&A, that feeds in via:

• Post-exit planning – vendors may be more attracted to structured consideration (e.g. loan notes, earn-outs, vendor finance) that can be managed against their wider tax profile.

• Portfolio sellers – investors relying heavily on dividends may think harder about how they recycle proceeds, potentially favouring capital growth assets or re-investment into new deals.

3. Deal structuring: more anti-avoidance, more scrutiny

Budget 2025 tightens several anti-avoidance regimes around share exchanges and reconstructions – the plumbing that sits behind many M&A transactions.

Key points:

• CGT anti-avoidance for share exchanges and company reconstructions is being updated so that relief is denied where one of the main purposes of arrangements is to reduce or avoid tax (Macfarlanes, 2025; Weil, 2025). (Macfarlanes, 2025) (Macfarlanes)

• Incorporation relief (where a business is transferred into a company in exchange for shares) will have to be actively claimed from 6 April 2026, rather than applying automatically (Saffery, 2025). (Saffery, 2025) (Saffery)

This matters because many deals involve:

• Pre-sale reorganisations – carving out property, IP or non-core divisions.

• Share-for-share exchanges – especially in roll-up strategies or when sellers take equity in a Newco or Holdco.

• Incorporation steps where unincorporated businesses are brought into corporate form before a sale.

The direction of travel is clear:

• HMRC wants to close perceived loopholes and ensure that reliefs are used for genuine commercial restructurings, not end-runs around CGT.

• Buyers and sellers will need cleaner, more defensible structuring rationales, documented commercial purpose, and robust tax advice.

For acquirers, this increases the importance of tax due diligence; for sellers it underlines the need to start planning earlier so restructurings can be done well before heads of terms, with room for clearance procedures where sensible.

4. Capital allowances and investment: modest help for post-deal capex

On the corporate side, Budget 2025 makes notable changes to capital allowances, which affect how attractive capex-heavy businesses look post-acquisition:

• Introduction of a permanent 40% First Year Allowance (FYA) for main-rate plant and machinery, alongside a continued £1m Annual Investment Allowance (HM Treasury, 2025; Freshfields, 2025). (HM Treasury, 2025) (GOV.UK)

• Offsetting that, the writing-down allowance rate is reduced for some main-rate expenditure, meaning less generous relief beyond year one (Freshfields, 2025). (Freshfields, 2025) (freshfields.com)

For deals this means:

• If your thesis involves significant upfront investment in kit, automation or technology, the new 40% FYA can enhance post-tax returns in the early years.

• Asset-heavy businesses (manufacturing, logistics, data centres, etc.) may see slightly improved attractiveness in discounted cash flow models, all else equal.

• You’ll need to re-run financial models and valuation work with updated capital allowance profiles, especially on deals where capex is lumpy or front-loaded.

In diligence and negotiation, expect more focus on:

• Capex plans for the first three years post-completion – to fully exploit the new FYA.

• Whether there is scope to bring forward investment to qualify sooner.

5. Capital markets and exits: SDRT relief for new UK listings

In an effort to boost the appeal of UK capital markets, Budget 2025 introduces a three-year exemption from Stamp Duty Reserve Tax (SDRT) on transfers of securities of companies that newly list on a UK regulated market (Macfarlanes, 2025; Mishcon de Reya, 2025; HM Treasury, 2025). (Macfarlanes, 2025) (Macfarlanes)

Headline features:

• For companies listing on a UK regulated market on or after 27 November 2025, transfers of their securities benefit from 0% SDRT (instead of 0.5%) for three years post-listing.

• This applies not only to shares but also other securities such as depositary interests.

Implications for M&A:

• For private equity and high-growth companies, the IPO route becomes slightly more attractive as an exit, especially where you’re expecting large secondary trades and follow-on offerings.

• UK listings – which have struggled versus New York and Amsterdam – gain an extra talking point when boards debate “where should we list?”

• For buyers of private businesses, this could shape vendor expectations: some growth companies might now view “list and roll-up” as a viable Plan B if trade bids look too cheap.

For mid-market M&A, IPOs are still only one piece of the puzzle – but any policy that nudges more companies towards public market optionality subtly raises the bar for private buyers.

6. Sector signals: high street, infrastructure and EVs

Budget 2025 contains a series of sector-specific and place-based measures that will feed into valuations and deal themes over time.

6.1 High street, hospitality and leisure

There is a £4.3bn business rates support package and permanently lower business rates tax rates for over 750,000 retail, hospitality and leisure properties from April 2026 (HM Treasury, 2025). (HM Treasury, 2025) (GOV.UK)

From an M&A perspective:

• This lends some medium-term support to bricks-and-mortar businesses, especially multi-site operators in hospitality and leisure.

• Investors may see slightly better risk-adjusted returns in roll-up strategies targeting fragmented high-street segments (gyms, casual dining, salons, etc.), especially in strong regional locations.

• However, these gains sit against the broader backdrop of weak consumer real income growth, so the net effect is supportive but not transformational.

6.2 Infrastructure and capital-intensive sectors

Budget analysis indicates over £120bn of capital investment in infrastructure, transport and energy systems being maintained, alongside planning reforms to speed development (NACFB, 2025; HM Treasury, 2025). (NACFB, 2025) (NACFB)

That tends to:

• Support deal pipelines in construction, engineering, renewables and specialist subcontractors, even if short-term construction data is weak.

• Encourage private capital into businesses positioned to benefit from grid upgrades, EV charging, and green infrastructure.

6.3 EV and motoring

The Budget confirms pay-per-mile taxation for EVs from 2028, at around 3p per mile for battery EVs and 1.5p for plug-in hybrids, alongside EV infrastructure support (Financial Times, 2025; HM Treasury, 2025). (Financial Times, 2025) (Financial Times)

For M&A this is tangential but notable:

• Fleet operators, EV charging networks, and forecourt businesses are directly in the policy cross-hairs.

• The 10-year 100% business rates relief for eligible chargepoints and EV-only forecourts could make EV infrastructure platforms attractive consolidation targets (HM Treasury, 2025). (HM Treasury, 2025) (GOV.UK)

Expect continued deal interest in EV charging, software-enabled fleet management, and data-heavy mobility services, all shaped by this evolving tax framework.

7. Funding conditions: lenders, private capital and risk appetites

Budget 2025 isn’t a banking regulation event, but it does matter for funding conditions:

• The government and OBR emphasise stability and incremental growth, not aggressive fiscal loosening (OBR, 2025; IFS, 2025). (IFS, 2025) (Institute for Fiscal Studies)

• There’s ongoing focus on public investment, planning certainty and regional competitiveness, which trade bodies see as supportive for lenders’ pipelines across property, development and asset finance (NACFB, 2025). (NACFB, 2025) (NACFB)

Real-world consequences for M&A funding:

• Debt markets for mid-market deals should remain functional but selective. Lenders are likely to stay disciplined on leverage multiples, particularly in cyclical sectors.

• The combination of high overall tax and relatively restrained growth forecasts keeps distressed and special situations firmly on investors’ radars.

• Institutional and retail flows into UK equities may be helped a little by ISA reforms and enterprise tax incentives, which aim to drive more retail investment into UK-listed firms (HM Treasury, 2025). (HM Treasury, 2025) (GOV.UK)

For private buyers (corporates and PE alike) the upshot is a market where cash-rich acquirers have an advantage, but well-structured, asset-backed financing remains available for credible deals.

8. Practical implications for buyers

If you’re on the buy-side – trade or financial – here’s how Budget 2025 changes the game day-to-day:

1. Be alert to timing pressure on sellers

   • Owners watching BADR move from 14% to 18% in April 2026, or who have just missed the EOT 0% window, may have strong views on completion dates.

   • Build this into your deal timetable, walk-away dates and negotiation strategy – sometimes giving certainty beats increasing headline price.

2. Refresh your valuation models

   • Update for 40% FYA and changed writing-down allowances, especially in capex-heavy sectors.

   • Factor in business rates relief when assessing high-street, leisure and hospitality assets from 2026 onwards.

3. Tighten tax and structuring diligence

   • With broader anti-avoidance on share exchanges and reconstructions, you’ll want to scrutinise historic group restructurings more closely.

   • Where you’re proposing complex share-for-share or Newco structures, get specialist tax input early and ensure the commercial rationale is clear.

4. Consider vendor-friendly structures… carefully

   • Given personal tax changes, some vendors may push for loan notes, deferred consideration or earn-outs.

   • These can unlock deals but require robust covenants, security and performance definitions to avoid disputes down the line.

5. Position yourself against EOTs

   • EOTs now carry an effective 12% CGT rather than 0%. That makes your offer relatively more competitive, especially if you can offer roles, legacy protections, or employee-friendly terms while still acquiring control.

9. Practical implications for sellers and owner-managers

For business owners planning an exit in the next three to five years, Budget 2025 plus earlier BADR changes send a clear set of signals:

1. Start early – tax is no longer just “the last page”

   • With BADR rates rising and EOT relief restricted, the difference between selling in 2025 vs 2027 can be hundreds of thousands (or more) in net proceeds.

   • Early planning allows you to choose between EOT, trade sale, PE buy-out, partial sale or recapitalisation, rather than being forced into whatever fits a looming deadline.

2. Consider a “dual-track” mindset

   • With SDRT relief for new UK listings and ongoing interest from private capital, some businesses can explore M&A and IPO/mini-IPO options in parallel.

   • Even if you never list, credible capital-markets optionality can strengthen your negotiating hand.

3. Get your structure and paperwork in order

   • Budget changes make HMRC less tolerant of aggressive reconstructions.

   • Clean up group structures, intercompany balances, property ownership and IP before going to market to avoid price chips and last-minute tax scares.

4. Model your post-sale income carefully

   • With higher taxes on dividends, rental and savings income, and frozen thresholds, think about how you’ll draw income after the deal.

   • The “headline price” is only half the story; net after-tax cash flow over the next decade is what really matters.

10. What to watch over the next 12–18 months

Budget 2025 sets the broad framework, but dealmakers should also keep an eye on:

• Further guidance and legislation on CGT anti-avoidance rules – especially how HMRC interprets “main purpose” in share exchanges and reconstructions.

• Market reaction to the EOT changes – will we see fewer EOTs, or just more carefully structured ones?

• Deal volumes in Q1–Q2 2026, as owners rush to beat the April 2026 BADR step-up.

• Any tweaks to capital markets reform – SDRT relief is one step; more could follow if the government wants a serious “City competitiveness” agenda.

• Interest rate path and credit conditions, which will interact with Budget 2025 to shape leverage levels and valuations.

11. Conclusion: a “steady but sharper” environment for UK M&A

Taken as a whole, Budget 2025 does three big things for UK M&A:

1. It removes some of the most generous exit tax perks (full EOT relief, low BADR rate) and replaces them with more moderate, more targeted reliefs.

2. It tightens the rules around tax-efficient structuring, pushing dealmakers towards simpler, more transparently commercial arrangements.

3. It offers selective sweeteners – 40% FYA, business rates relief, SDRT relief on new listings – that will incrementally improve the economics of the right deals in the right sectors.

For buyers, this is an environment to lean in with discipline: capital is still rewarded, especially where you can bring operational improvement and long-term stewardship to good businesses whose founders are ready to step back.

For sellers, it’s a nudge to stop procrastinating. With tax on business sales rising in stages, and some reliefs dialled back, the coming couple of years may be as good as it gets from a fiscal perspective – particularly if your succession timeline already points to an exit in that window.

How Lexis Capital Group Can Help You

At Lexis, we specialise in guiding owners and acquirers through the complexities of UK M&A in a changing tax and regulatory environment. Whether you are preparing for a sale, evaluating succession options such as an EOT, restructuring ahead of a transaction, or assessing acquisition opportunities, our team brings deep experience in valuation, negotiation, due diligence and deal structuring. We help you understand how Budget 2025 impacts your specific situation, model the net outcomes, and create a clear, strategic route to a successful transaction. If you are considering a sale or acquisition over the next 12–24 months, Lexis can give you the clarity, confidence and tactical advantage needed to move forward on the strongest possible terms.