Tax plans worries spark UK tech exodus fears ahead of budget

British technology bosses and investors are warning that entrepreneurs may be forced to leave the UK if the government moves forward with controversial plans to raise capital gains tax on share sales according to a detailed report by CNBC.

Recent media reports have suggested Finance Minister Rachel Reeves is planning to hike capital gains tax (CGT), which applies to the profit investors make on the sale of an investments, with The Guardian saying the levy could jump to 39 per cent. Last week, UK Prime Minister Keir Starmer told Bloomberg that such speculation was “wide of the mark.”

Government is aiming to close a multi-billion funding gap

Reeves is expected to announce sweeping fiscal changes during her October 30 budget, as she seeks to close a multi-billion funding gap in public finances.

The government of UK is also planning to increase capital gains tax on shares and other assets by “several percentage points,” the Times reported, meaning that those who sell their stakes in an acquisition, initial public offering or secondary share sale will be taxed on any gain in value.

Reeves also plans to cut the so-called business asset disposal relief (BADR), which allows entrepreneurs to pay a reduced 10 per cent tax on profits from the sale of their firms, Bloomberg found.

The CNBC report further stated that they have not been able to independently verify these reports. A Treasury spokesperson told CNBC the government doesn’t comment on “speculation around tax changes outside of fiscal events.”

Several entrepreneurs and investors have warned that the UK could face an exodus of technology entrepreneurs as a result of the reported tax changes. In an open letter to Reeves earlier this month, more than 500 entrepreneurs urged the finance minister to resist calls to hike capital gains tax or restrict the business asset disposal relief scheme.

Impact of higher capital gains tax

“Higher CGT or any restrictions on BADR would make this relief less competitive at a time when the rest of the world is making their reliefs more competitive,” read the letter, published by The Entrepreneurs Network on October 13.

“It would mean the UK has the second-highest CGT rate in Europe, and jeopardise the success of our country’s startup ecosystem by enormously weakening the incentive individuals have to build businesses.”

The list of signatories includes the likes of 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 suggested that the plans would make it harder for entrepreneurs to build businesses in the UK or indeed, force entrepreneur out of the country.

Views of experts and the potential negative impact of tax plans

The CNBC report further discussed the views of several prominent investors and market participants about how they think the potential upcoming tax hikes will impact the UK technology space.

Adam French, partner at seed investors Antler, stated in an email that “I’ve noticed a rising sense of stress in the UK tech ecosystem over proposals like this. If implemented, such a move would send a deeply negative signal,”

“There is a real risk of complacency in UK tech, in tandem with increasing competition from Paris and Berlin for talent, and a brain drain to the US,” French added.

Harry Stebbings, a venture capitalist known for popular tech podcast “The Twenty Minute VC,” told The Guardian newspaper last week that entrepreneurs would leave the UK if the government raises capital gains tax. Calling the government’s plan on capital gains tax the “biggest” issue for entrepreneurs, Stebbings said: “I know fewer entrepreneurs will be here. They will leave en masse.”

Not everyone agrees that capital gains tax shouldn’t be increased to raise public finances.

In a report by the centre-left Institute for Public Policy Research published last week, a group of millionaire business owners said they would welcome an increase in the rate levied on capital gains to match the higher rate of income tax.

The analysis found 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.