Victoria Ansell, Partner, Marktlink UK
Entrepreneurs who own capital-intensive businesses in sectors such as industrials and technical services have been hit particularly hard by reforms to IHT and CGT, but personal taxes shouldn’t be the driving factor behind business strategy…
Recent reports have once again raised concerns that UK entrepreneurs and family-owned businesses are allowing tax considerations, rather than commercial objectives, to drive ownership and investment decisions.
We are all familiar with the narrative. Recent changes to inheritance tax (IHT) have impacted succession planning and with another budget looming, there is renewed speculation about further reform to capital gains tax (CGT), and increased focus around getting deals done before 28 October 2026. It is a repeating pattern, similar to the hype over the impact of the tax changes of October 2024 and March 2021.
With a generation of UK business owners considering succession or sale of their companies amidst the so-called ‘great wealth transfer’, these issues are higher up the business agenda than ever. Of course, no one wants to pay more tax than they have to, but is that really the most important consideration?
For most entrepreneurs, their business is far more than an asset on a balance sheet.
It may be the company they have spent 20 or 30 years building. It may employ dozens of people, have long-standing customer relationships and carry the reputation they have worked hard to establish. It may also be the largest component of their family's wealth.
That makes succession one of the most important decisions a founder or owner will ever face, and it is understandable that owners are asking whether they should act now and bring forward a sale.
Tax is an inevitability if one has built a valuable business. Mitigating tax exposure and forward financial planning are something that all sensible entrepreneurs should be taking advice on, year to year, and well in advance of contemplating succession or an eventual sale of their business. In doing so, they will maximise their options and opportunities, and be able to go into a process with confidence.
If one focuses purely on trying to save tax, there is a significant risk that as a seller, one hands every other playing card to the buyer – the attachment to a date and time, for the sake of saving X% in tax, can reduce sell-side bargaining power to almost nil. So desperate is the seller to close on time, that they may agree to terms that they would never have considered otherwise.
Value creation, commercial strategy, operational resilience, management succession, buyer appetite and the owner's personal objectives are also key to achieving an optimal outcome.
Tax should inform succession planning. It should not dictate it.
That difference can have a significant impact on the decisions you make today and the value you create for tomorrow.
Don’t let the tax tail wag the business dog
Industrial and technical services businesses are often built around long-term decisions and investments.
An engineering business might need to invest in new equipment to increase capacity. A specialist contractor may need to recruit ahead of growth. A technical services company could be looking to expand into a new geography or adjacent market.
None of these decisions should be made in isolation from their tax implications. But neither should they be rejected simply because the immediate tax position looks less attractive.
A decision that reduces this year’s tax bill but limits growth, weakens the management team or makes the business less attractive to future buyers may ultimately destroy more value than it saves.
Equally, an investment that increases taxable profits in the short term but creates stronger recurring revenues, greater operational resilience or a broader customer base could significantly improve the long-term value of the business.
Tax is one input into a strategic decision. It shouldn’t be the strategy itself.
Think about the business from the buyer’s perspective
Particularly important when thinking about succession or a future sale is what a potential buyer is looking for.
Those most likely to be the right fit are interested in the quality and sustainability of the business. Not just the tax profile.
What does the revenue profile look like? How dependent is the business on its founder? How strong is the management team? Are customer relationships diversified? Is there a clear growth opportunity? How defensible is the company's market position?
A buyer may place significant value on specialist capabilities, engineering expertise, long-standing customer relationships, recurring or repeat revenues and the ability to scale.
This highlights how the decisions you make years before a transaction can influence the eventual outcome far more than optimising your position for a single tax year.
Preparation creates optionality
This is why good exit planning is not about trying to predict the future, it is about creating options.
An owner who starts thinking about their eventual exit early has more time to strengthen the business, develop management capability and identify opportunities to increase value.
They also have more choices when the time comes.
You might ultimately sell to a strategic buyer. You might consider a private equity-backed transaction, an MBO, a partial sale or another form of succession. The important point is that you do not have to decide today.
What you can do today is make sure the business is in a position where multiple options can be available.
In this ever-changing world, that principle is particularly relevant when tax policy changes. Rather than making a major business decision in reaction to the latest announcement, owners can step back and consider how it fits into their wider objectives.
Timing the business, rather than trying to time the tax environment
When there is tax pressure, there is a natural temptation to think: Should I sell now before the rules change again? Should I invest now? Should I restructure now?
There is no universal right or wrong answer. Only what is best for your business at that time.
The best time to make a strategic decision is usually determined by the circumstances of the business and the owner's objectives – and is best made with clear aims and plans, rather than reacting to the uncertainty of the tax environment.
For an industrial or technical services business with a strong growth opportunity, delaying investment because of tax uncertainty could mean missing a valuable window to expand.
For an owner whose business is already well positioned for a transaction, waiting indefinitely for a more favourable tax environment could introduce other risks: market conditions can change, buyers' priorities can shift and personal circumstances can evolve.
Take advice early – and keep the big picture in view
For an entrepreneur considering a major decision, the conversation should also cover value creation, commercial strategy, operational resilience, management succession, buyer appetite and the owner's personal objectives.
That is where an adviser with a broader M&A perspective can add value.
At Marktlink, we believe the relationship with an entrepreneur should often begin years before a transaction takes place. With significant experience in advising UK SMEs and industrial and technical services businesses, in particular, our role is not simply to find a buyer. It is to understand what success looks like for the owner, help identify opportunities to increase value and prepare the business so that the owner can make informed decisions when the time comes.
That is particularly relevant for owner-managed businesses where the eventual sale may be one of the most important financial and personal decisions the founder makes.
The strategic question is bigger than tax
Of course tax matters. It can materially affect the proceeds of a transaction, the economics of an investment and the way wealth is transferred between generations. But it should sit within a broader decision-making process.
The strongest businesses are not built around tax rates. They are built around customers, people, capability, growth and long-term commercial value.
So when the next tax announcement arrives, it may be worth resisting the instinct to immediately ask “What should I do differently?”
Instead, try thinking:
Tax should absolutely inform the answers.
It just should not decide them.