Looking back on 2024, it was a muted year for the London Stock Exchange (LSE) with only 18 companies choosing to list during the year. This is perhaps of little surprise bearing in mind the political uncertainty caused both by the UK and US elections and challenging economic conditions.
Despite this, there were a number of notable high points for the LSE, such as the successful listing of Raspberry Pi and an uptick in activity in the final quarter of 2024. This has been followed by fresh speculation of more companies contemplating listing in 2025, pointing towards a more active year.
For those businesses contemplating listing within the next 12 to 24 months, now's the time to begin planning what this might look like. Notable changes to the UK tax landscape announced in last year’s Autumn Budget need detailed consideration, and upcoming prospectus changes and listing regime reforms add new nuances to the decision making process.
One of the main considerations when considering an IPO, is where to list: the US, UK, Europe or further afield in Asian markets can all be attractive listing locations. Ultimately, the decision on where to list extends beyond tax, but the stability of the underlying tax environment and its overall attractiveness are key factors.
In the UK, the new Labour Government published its Corporation Tax Roadmap alongside the 2024 Autumn Budget. The roadmap outlines where the Government makes commitments to key features of the corporation tax landscape and highlights several areas where it will be exploring change. With the intention of providing stability and certainty for businesses, the roadmap confirms the Government's commitment to:
On top of a strong tax treaty network, this maintains the UK as a competitive jurisdiction from a headline corporation tax rate and reliefs perspective. It should also give businesses some welcome certainty from which they can begin to make decisions on a long-term basis.
In the UK, companies can choose to either list on the FTSE main market or the junior Alternative Investment Market (AIM). The latter is typically made up of smaller companies which may not be ready for the main market but still want access to the capital markets.
Historically, investors who chose to invest in AIM-listed shares could qualify for Business Property Relief (BPR) at 100%, meaning that holdings of AIM shares were effectively exempt from inheritance tax (IHT). This was a significant incentive for those looking to invest on AIM in comparison to investing in shares on the main market. It also compensated investors for investing in perceived riskier businesses listed on AIM. During the build-up to the Autumn Budget, there was widespread speculation that this relief could be abolished entirely. Naturally, this dampened the AIM market capitalisation in the months building up to the Autumn Budget.
However, the announced changes were more moderate than some feared. Chancellor Rachel Reeves announced that the rate of BPR available would be reduced from 100% to 50% for shares listed on an exchange that isn’t a recognised stock exchange (ie, AIM-listed shares). This effectively halved the IHT relief previously given to investors investing in AIM businesses.
With the BPR changes now confirmed, the hope is that the AIM market can refocus on its core proposition and continue to serve a valuable purpose for smaller businesses looking to raise capital. It remains to be seen whether the changes impact business decision making when deciding whether to list on the main market or AIM, however.
After much speculation throughout 2024 on the future of the capital gains tax (CGT) regime for individuals, it was confirmed that the main CGT rate for basic rate taxpayers would increase from 10% to 18% and from 20% to 24% for others – with effect from 30 October 2024.
The Government also announced changes to Business Asset Disposal Relief (BADR) and Investors' Relief. While the lifetime allowance for the quantum of gains within the scope of BADR remains at £1 million, the rate of CGT for BADR and Investors' Relief is due to increase from 10% to 14% from 6 April 2025 and then to 18% from 6 April 2026.
The changes to the CGT rate, and the availability of BADR and Investors' Relief, may be a key consideration for shareholders looking to list and could impact the timing of a prospective IPO.
Notably, investors in AIM businesses should continue to benefit from the Enterprise Investment Scheme and Venture Capital Trust schemes where they, and the companies they invest in, qualify for such tax relief. These regimes were extended to 2035 and remain valuable reliefs particularly in the context of AIM-listed businesses, so their extension has been welcome news.
Therefore, despite some degree of market uncertainty in the UK, the continued availability of certain tax reliefs and smaller-than-expected increases to tax rates should increase confidence in UK listings and maintain the UK as an attractive location.
The market for talent is crucial to all businesses seeking to scale and grow. The talent market in the UK has been one of the major benefits to the UK and the Autumn Budget made no changes to beneficial tax-advantaged share schemes, such as Enterprise Management Incentive and Company Share Option Plans. These remain an important mechanism for listed businesses to attract and retain talent.
The UK remains a highly competitive and attractive location. Importantly, the Autumn Budget set out the direction of travel for certain key areas of the UK tax landscape, which should assist businesses and investors in making long-term decisions.
Overall, UK IPO activity has been low in the past 12 to 24 months. We anticipate increased levels of activity during 2025, however, as business confidence begins to increase and other factors, such as the proposed regulatory listing reforms take effect, which we expect to improve the competitiveness of the LSE.
As always, we still expect some caution as macroeconomic factors in the UK are yet to fully play out and wider geopolitical developments, such as the US election and its impact on the wider global economy, remain unclear.
For more insight and guidance on IPO readiness and planning, contact Mandipa Soni, Chris Mundy or Robin Barker.
