While many founders rightly focus on the economic and supply chain challenges posed by the Middle East conflict, it’s also important to keep an eye on events closer to home and the tax changes they could bring.
Those looking to complete a transaction in the next three years may be amongst those most impacted by a change in the government’s leadership.
‘This election is about change’ was the opening line of the Labour party’s manifesto for the 2024 general election.
A perceived lack of change by the electorate and a desire to disrupt the status quo in the recent elections might ultimately lead to a significant change in the approach from the current occupants of Downing Street, even if the current leadership of the government remains in place.
All this political noise might feel like a distraction for some founders right now, given the myriad of other challenges posed by global events.
Tax implications
It is, however, important to be aware of the path a change at the top of government could lead to, and what it might meant for founders from a tax perspective.
If we take a look backwards first, it helps inform what could lie ahead. The manifesto election commitments did not set out a specific government tax strategy beyond what the Labour party would not do.
A series of self-imposed red lines restrict the government from increasing the rates of income tax, employees’ National Insurance contributions (NICs) and VAT.
Beyond that, the Chancellor has also committed to retaining the current rate of corporation tax and has ruled out a standalone wealth tax, although a property wealth tax was announced in the 2025 Autumn Budget.
Putting that into context, those constraints represent around 70 per cent of the government’s total tax receipts.
There was a lot of debate about whether employers’ NICs also fell within the manifesto commitments but given that it represents around a further 14 per cent of the country’s annual tax receipts, it is not difficult to see why the path set by the manifesto commitments led the Chancellor in that direction.
The challenge for the government is that if further tax revenues are required, there are very few tax levers left for the Treasury to pull.
A positive factor is that the fiscal headroom generated by the Chancellor in the last Budget is larger than it was following other recent fiscal events.
This could quickly be eroded though if political pressure mounts to provide widespread support to taxpayers in anticipation of an energy and cost-of-living crisis in the coming year.
There are various options that could be pursued to raise further tax receipts but the one gathering more pace is an overhaul of the capital gains tax (CGT) regime.
Alongside wider reforms, some influential economists have suggested that an increase in CGT rates, so that they are more closely aligned with income tax rates, could raise billions of additional tax receipts.
Such suggestions are commonly made alongside the proposal that those emigrating from the UK should face a CGT liability on uncrystallised gains.
Rachel Reeves has so far resisted such calls, likely because the actual outcome of increasing CGT rates is highly uncertain.
The Treasury will have undertaken its own modelling, which is not available publicly, but HMRC’s own estimates suggest that annual CGT receipts would reduce by over £3.5bn by 2028/29 if the top rate of CGT was increased by 10 per cent.
That risk does not appear to have deterred some ministers, with a publication on 12 May 2026 by the Labour Growth Group outlining that reform of CGT is required and a similar proposal has also been suggested by the Tribune group of Labour ministers.
Think ahead
If this reform is ultimately adopted, the result may be a sharp rise in effective CGT rates for business owners on an eventual exit.
Founders with a significant transaction on the horizon should therefore be thinking ahead of what this might mean to them and their businesses.
- Chris Etherington is a tax partner at RSM UK.