Britain faces warnings of a tech exodus over tax plans ahead of high-stakes budget
Technology bosses and investors warn the U.K. could face an exodus of entrepreneurs if the government hikes capital gains tax — a levy on investment profits.
British technology bosses and investors are warning that entrepreneurs may be forced to leave the U.K., if the government moves forward with controversial plans to raise capital gains tax on share sales.
A group of prominent UK technology entrepreneurs and investors are sounding the alarm, warning that the country could face a mass exodus of entrepreneurs if the government proceeds with plans to raise capital gains tax on share sales. The proposed hike, which could see the tax rate jump to 39%, has sparked concerns that it would make the UK a less attractive place for entrepreneurs to start and grow their businesses.
The warning comes as finance Minister Rachel Reeves is expected to announce sweeping fiscal changes in her upcoming budget, aimed at closing a multi-billion funding gap in public finances. The government is also planning to increase capital gains tax on shares and other assets by "several percentage points," according to reports. Additionally, the business asset disposal relief (BADR) scheme, which allows entrepreneurs to pay a reduced 10% tax on profits from the sale of their firms, is set to be cut.
Over 500 entrepreneurs have signed an open letter urging Reeves to resist calls to hike capital gains tax or restrict the BADR scheme. The letter, published by The Entrepreneurs Network, warns that higher CGT rates would make the UK's relief less competitive compared to other countries, and would jeopardize the success of the country's startup ecosystem.
Signatories to the letter include prominent figures such as Giles Andrews, co-founder of digital bank Zopa, Rishi Khosla, CEO of financing platform OakNorth, and Victor Riparbelli, boss of artificial intelligence firm Synthesia. They argue that the plans would make it harder for entrepreneurs to build businesses in the UK, or even force them to leave the country.
Adam French, partner at seed investors Antler, echoed these concerns, stating that the proposals would send a "deeply negative signal" to entrepreneurs and could lead to a brain drain to the US. Harry Stebbings, a venture capitalist, went further, warning that entrepreneurs would leave the UK en masse if the government raises capital gains tax.
However, not everyone agrees that capital gains tax shouldn't be increased. A report by the center-left Institute for Public policy Research found that millionaire business owners would welcome an increase in the rate levied on capital gains to match the higher rate of income tax. The analysis also suggested that capital gains tax was not a primary driver of investment decisions, with entrepreneurs more focused on issues like access to financing, market opportunities, and broader economic conditions.
The debate highlights the delicate balance between raising revenue for the government and maintaining a competitive business environment. As the UK government weighs its options, entrepreneurs and investors are urging caution, warning that the consequences of a capital gains tax hike could be far-reaching and detrimental to the country's startup ecosystem.
The proposed changes to capital gains tax and the BADR scheme have sparked concerns among entrepreneurs and investors that the UK is becoming less attractive for startups and scale-ups. The UK's startup ecosystem is already facing challenges, including a lack of funding and a shortage of skilled workers. A capital gains tax hike could exacerbate these issues, leading to a decline in entrepreneurship and innovation in the country.
The government's plans to increase capital gains tax and restrict the BADR scheme are also likely to have a disproportionate impact on smaller businesses and startups, which often rely on the scheme to raise capital and fund their growth. A hike in capital gains tax could make it harder for these businesses to access the funding they need to grow and scale, potentially leading to a decline in entrepreneurship and innovation in the UK.
In conclusion, the proposed changes to capital gains tax and the BADR scheme have sparked concerns among entrepreneurs and investors that the UK is becoming less attractive for startups and scale-ups. The government must weigh the need to raise revenue against the potential consequences for the country's startup ecosystem, and consider alternative solutions that do not disproportionately impact smaller businesses and startups.
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