Autumn Budget 2025: The key takeaways for M&A

After weeks of intense press coverage, the Autumn Budget arrived with a raft of headline announcements on income tax thresholds (frozen), the two-child benefit cap (scrapped) and the 5p cut in fuel duty (extended), as well as the drama of the Office for Budget Responsibility (OBR) mistakenly publishing its forecast prior to the announcement.

From an M&A perspective, the Budget may have brought some relief (if not any cause for celebration), as a potential increase in Capital Gains Tax that had been suggested following the apparent U-turn on raising income tax did not come to pass.

However, there were a number of developments that may prove relevant to UK dealmakers, including a notable announcement relating to CGT. Here, we look at the core implications for M&A, with insights from some industry experts.

Full CGT exemption for Employee Ownership Trusts ends
Employee Ownership Trusts have become a major exit strategy since the structure was introduced in 2014, with data from Employee Ownership Association and the White Rose Employee Ownership Centre recently putting the number of employee-owned businesses at around 2,470.

In a tougher exit environment, owners have turned to EOTs as a way to secure reliable succession, improve employee engagement, ensure the continuation of company values and, crucially, due to the tax advantages the structure offers - most notably, 100 per cent exemption from Capital Gains Tax.

Likely the biggest M&A-related story to come out of the Autumn Budget is that this 100 per cent exemption has now been halved to 50 per cent, potentially significantly increasing the tax burden for owners who seek to sell to an EOT.

As noted by Samantha Lenox, Head of Employee Share Schemes at SME-focused law firm Harper James, this change means that the tax gap between a sale to an EOT and a trade sale is significantly tighter.

Lenox commented: “Qualifying sales to an EOT will still benefit from a specific capital gains tax relief, but that relief has now dropped from a full 100% exemption to 50%. By comparison, a straightforward trade sale remains subject to capital gains tax of up to 24%, with Business Asset Disposal Relief available at a lower rate on the first £1 million of qualifying gains. The interaction between EOT relief and BADR on qualifying EOT sales will also need to be considered.”

Lenox says that the Autumn Budget “creates a mixed picture” for owners part-way through or actively considering an EOT sale. While EOTs remain a compelling option for owners who value “stronger employee engagement, long-term independence and protecting the legacy of the business”, Lenox asserts that “reduced tax relief, coupled with tighter qualifying conditions, means deals will need to be structured and documented with even more care.”

She continues: “The decision between an EOT sale and a trade or private equity sale is now less about chasing the best tax break, and more about which route genuinely supports the commercial, cultural and succession goals of the company and its shareholders.”

Christian Carr, partner at law firm Spencer West LLP, meanwhile, says that halving CGT relief on EOT sales “will likely cool momentum in the short term” and “raises founder tax costs, squeezes headroom for deferred consideration and is likely to bring seller price expectations closer to independent valuations.”

However, he adds, EOTs aren’t just about tax advantages and the fact that they preserve culture, jobs and independence means they remain “a robust succession route for good businesses”. Carr concludes that, despite the change, “the added advantage of creating your own buyer and softer due diligence remain unaffected.”

EMI eligibility limits lifted
More positive news for business owners came with the announcement that the eligibility limits of the Enterprise Management Incentive (EMI) scheme would be lifted. The EMI scheme enables certain UK SMEs to offer employees the right to buy shares in the company (in future) at a fixed price and without paying National Insurance or income tax.

The EMI scheme had previously been limited to companies with under 250 staff and gross assets of £30 million, while the options that could be sold were capped at £3 million. This has now been raised to 500 employees, £120 million in assets and the options that can be sold increased to £6 million.

Samantha Lenox of Harper James called the decision “very welcome news for growth-focused SMEs”, saying: “It keeps a tried-and-tested tool on the table, meaning businesses can continue using tax-efficient share options to attract, motivate and keep key people, with more confidence when building equity into their long-term reward plans.”

“The extension to the maximum tax-relieved exercise period to 15 years, with effect from 6 April 2026, is very helpful in light of longer exit horizons. It’s welcome to see that this change should apply to existing contracts in force at that date.”

Clarity may encourage dealmaking, but costs could hit valuations
One of the biggest barriers to a dealmaking revival this year has been ongoing economic and political uncertainty, something that has escalated in the run-up to the Autumn Budget amid major speculation about potential tax hikes.

Prior to the announcement, some had suggested that simply getting the Budget out of the way would provide a degree of certainty that could encourage stronger M&A activity during the final weeks of the year and in early 2026.

As Jerome Pottier, EMEA Chief Revenue Officer at Datasite, says: “Over the past year, M&A activity has proceeded cautiously amid economic and political uncertainty. While the business landscape remains challenging both domestically and cross-border, dealmakers can now look toward 2026 with renewed confidence, now that the Autumn Budget has been delivered.”

However, the Budget also saw business costs continue to rise, with the minimum wage increasing for both 18-20-year-olds and over-21s, while taxes on products such as alcohol, tobacco and sugary drinks were either increased or extended.

Jerome Pottier notes that rising employment costs, in particular, could provide a headwind to activity, especially in labour-intensive industries such as hospitality and healthcare, “where margins play a critical role in valuation.”

Potter continues: "Higher cost bases translate to compressed margins, softer pricing, and intensified buyer scrutiny. To remain competitive in upcoming deal processes, operators must demonstrate operational efficiency through automation, streamlined processes, and flexible workforce models that protect margins and support compelling valuation narratives. "

Ultimately, though, deal activity is likely to recover to some extent in the post-Budget period, with Pottier stating that “those who move decisively, structure transactions intelligently, and stay ahead of the tax curve will be best positioned to capitalise on emerging opportunities.”

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