The UK tech industry is raising alarms over potential tax changes that could significantly alter the landscape for entrepreneurs. British technology leaders and investors warn that government plans to increase capital gains tax (CGT) on share sales might push founders to relocate their businesses outside of the UK. With Finance Minister Rachel Reeves reportedly considering raising the CGT rate as part of a wider effort to close a substantial funding gap, many in the tech community fear the consequences could be severe.
Although Prime Minister Keir Starmer recently downplayed speculation about an imminent tax hike, concerns are still mounting. Reports indicate that Reeves may introduce sweeping fiscal changes in her October 30 budget, which could include raising CGT to as much as 39%, affecting investors selling shares, and those involved in acquisitions or IPOs.
Adding to the tension, plans to reduce the business asset disposal relief (BADR), which currently allows entrepreneurs to pay a reduced 10% tax when selling their companies, are also on the table. Industry leaders argue that such measures would weaken incentives for building businesses in the UK, especially as other countries become more competitive in offering tax reliefs to entrepreneurs.
In an open letter to Reeves, over 500 entrepreneurs, including notable figures like Zopa co-founder Giles Andrews and Synthesia CEO Victor Riparbelli, urged the government to reconsider. They argue that these tax changes would make the UK one of the least competitive environments for startups in Europe, potentially leading to a brain drain as entrepreneurs seek more favorable conditions elsewhere.
The letter warns that higher CGT and reduced relief would not only hurt individual entrepreneurs but could also weaken the overall startup ecosystem. Some venture capitalists, including Adam French of Antler, and prominent voices like Harry Stebbings of "The Twenty Minute VC" podcast, echoed this sentiment, highlighting the increased competition from other European hubs like Paris and Berlin, as well as the ever-present lure of the U.S. tech market.
While some support the proposed tax hikes, notably a group of millionaire business owners who believe CGT should match income tax rates, many within the tech industry see the move as short-sighted. They argue that while tax rates play a role, the broader issue lies in maintaining access to financing, market opportunities, and ensuring a vibrant, supportive environment for innovation.
As the UK government prepares to announce its budget, the tech sector is watching closely, aware that the future of British entrepreneurship could be on the line. Whether these potential tax changes will drive entrepreneurs away or prompt a new wave of innovation remains to be seen, but the debate underscores just how critical policy decisions are to the health of the nation’s startup ecosystem.
