Technology chiefs and investors in Britain have warned that entrepreneurs may be forced to leave the country if the government goes ahead with its controversial plans to increase capital gains tax on share sales.
Recent media reports indicate that Treasury Secretary Rachel Reeves is planning to increase the capital gains tax (CGT), which is applied to the profits made by investors when selling their investments, as the Guardian newspaper reported that the tax may rise to 39 percent, and British Prime Minister Keir Starmer said. Last week, Bloomberg said such speculation was “far from the truth.”
Reeves is expected to announce comprehensive financial changes during the October 30 budget, as she seeks to close a financing gap amounting to several billion in public finances.
The government plans to increase capital gains tax on shares and other assets “by some percentage points,” according to a Times report, meaning those who sell their stakes in buyouts, initial public offerings or secondary share sales will be taxed on any increase in value.
Rachel Reeves plans to reduce what is known as the business asset divestment exemption (BADR), which allows entrepreneurs to pay a reduced tax of 10 percent on profits resulting from the sale of their companies, according to what Bloomberg reported.
CNBC was unable to independently verify these reports, while the Treasury Department did not immediately respond to a request for comment.
Britain has the highest capital gains tax rate
Britain could face a mass departure of tech entrepreneurs as a result of reported tax changes, entrepreneurs and investors have warned.
In an open letter to Reeves earlier this month, more than 500 entrepreneurs urged the Chancellor to resist calls to increase capital gains tax or restrict the business asset divestment relief regime.
“An increase in the capital gains tax or any restrictions on the business asset liquidation exemption will make this exemption less competitive at a time when the rest of the world is working to make their exemptions more competitive,” said the letter, which was published by the Entrepreneur Network on October 13.
“This would mean that Britain would have the second highest rate of capital gains tax in Europe, threatening the success of our country’s start-up ecosystem by significantly weakening the incentive that individuals have to build businesses,” the letter added.
The list of signatories includes prominent names such as Zopa Bank co-founder Giles Andrews, Oak North Finance CEO Rishi Khosla, and Victor Riparbelli, president of the artificial intelligence company Synthesia.
They suggested that these plans would make it difficult for entrepreneurs to build companies in the UK, or might even force them to leave the country.
“By discouraging entrepreneurs from starting and growing their businesses, the Treasury may end up reducing tax revenues overall,” the letter said.
Tensions in Britain’s technology system
Adam French, a partner at Antler Investments, explained: “I have noticed a growing sense of tension in the British technology ecosystem around proposals like these… If implemented, such a move would send a profoundly negative signal.”
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French added: “There is a real danger of recklessness in the British technology sector, coupled with increasing competition from Paris and Berlin for talent, and a brain drain to the US.”
Harry Stebbings, a venture capitalist known from the popular technology podcast The Twenty Minute VC, told the newspaper last week that entrepreneurs would leave Britain if the government raised capital gains tax.
Stebbings described the government’s capital gains tax plan as “the biggest” for entrepreneurs, saying, “I know that fewer entrepreneurs will be here, and they will leave en masse.”
But not everyone agrees that the capital gains tax should be increased to increase public revenues. In a report issued by the Institute for Public Policy Research, a left-wing center, a group of business owners said they would welcome an increase in the rate imposed on capital gains to match the higher income tax rate.
The analysis found that capital gains tax was not a major driver of investment decisions, with entrepreneurs focusing more on issues such as access to finance, market opportunities, and broader economic conditions.
