UK tax environment reducing the attractiveness of investing in Britain

The UK’s current tax environment is now prompting businesses to consider moving abroad, according to industry experts.

The UK’s tax system now deemed a ‘frozen tax world’, following Chancellor Jeremy Hunt’s reduction in NI taxes offset by frozen income tax thresholds, is now leading to many more Brits seeking advice on savings.

The frozen Inheritance Tax (IHT) nil rate bands, a disliked tax according to a YouGov survey, is contributing to an increase in interest of Brits with businesses to move abroad.

With countries such as Portugal, Spain and Italy now becoming especially appealing due to their attractive tax systems, Claire Trachet, CEO/Founder of the business advisory, Trachet, assesses that a potential interest rate cut would help reduce this exodus and improve the state of UK M&A.

2023 proved to be a difficult year for the UK’s dealmaking ecosystem, with a recent report from the London Stock Exchange Group’s Deals Intelligence Team stating that the total value of mergers and acquisitions involving UK firms fell by 33% throughout 2023 – a continuation of the decline in activity that has occurred since the post-pandemic boom of 2021.

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Over the previous year, companies and investment funds were encouraged to rein in spending due to continued hikes to the base rate of interest, peaking at 5.25% in August. As a result, capital has shortened within the dealmaking scene, as the number of new UK investment funds dropped to a 20-year low over the year.

In light of this and as fears of a recession continue to grip experts from across the country, many are predicting an interest rate cut from the BoE citing the surprising fall in inflation alongside demonstrable signs of fiscal contraction. According to Claire Trachet, cutting interest rates would allow struggling scale-ups and SMEs to form the backbone of a prospective M&A comeback as access to capital from traditional funding sources eases, allowing for a dealmaking resurgence on the back of the mid-sized merger.

Claire Trachet, CEO/Founder of Trachet, said, “Many voices from across the investor landscape are calling on the BoE to urgently reassess their macroeconomic priorities in the new year. With inflation set to continue its rapid fall and symptoms of a potential recession worsening, it’s time that policymakers looked towards kickstarting the UK’s economic recovery.

“Within the M&A sector, the mid-sized merger is poised to dominate the dealmaking landscape, with many overseas investors looking to buy up undervalued UK-based startups. A cut to interest rates by the BoE would, therefore, be essential in allowing domestic investors to take a greater share within the UK’s projected M&A recovery, reverting the focus back towards high-growth ventures.”