Hundreds of founders and CEOs at UK tech companies have said that raising capital gains tax (CGT) could “jeopardise the success” of the country’s tech sector.
In a letter sent to the government on Sunday, 500 entrepreneurs — including the likes of founders of unicorns like AI startup Synthesia, fintech OakNorth and medtech CMR Surgical — urged the UK government to “resist” hiking CGT, as fears grow that changes could lower the value of an exit and make the UK a less attractive place to start a tech business.
It comes as the government looks to woo investors ahead of its International Investment Summit starting later today — and entice them to continue to pump cash into the UK, especially in its tech and life sciences sectors. Last week, Darktrace founder and CEO Poppy Gustafsson was appointed as investment minister to champion that cause, while this morning the government announced plans for billions of pounds worth of investment into AI and life sciences.
But, founders warn, the UK tech sector would still suffer if CGT rises in the upcoming Autumn Budget on October 30. Business Asset Disposal Relief (BADR) — previously known as Entrepreneurs’ Relief — sees founders pay 10% tax on exit takings of up to £1m and 20% tax on business assets over that threshold.
“At the last general election, many entrepreneurs put their faith in what they recognised was a changed Labour Party,” the letter, organised by startup lobby group The Entrepreneurs Network, reads. “Reporting in the lead up to the Autumn Budget, however, has given many in Britain’s thriving entrepreneurial community pause for thought.”
Last month, some UK startup founders told Sifted they were trying to rush through sales of their companies ahead of the budget, while others said they’d consider relocation overseas should CGT rise significantly.
“Enormously weaken incentives”
There have been numerous reports the government was considering raising CGT — tax paid on sales of things like second homes and shares in companies — with the Guardian saying that the Treasury was modelling a range of 33% to 39%.
A Treasury spokesperson told the FT that the figure “is not based on government modelling — we do not recognise it. This is pure speculation”. But it hasn’t stopped founders from being spooked that increases could impact BADR.
Restricting BADR or raising the rate of CGT would “enormously weaken the incentive individuals have to build businesses”, the hundreds of entrepreneurs said, which could “end up lowering the tax take overall”.
“The risks entrepreneurs take in striking out and starting new and innovative companies are essential to moving the economy forward,” it added, arguing that without the incentive of a lower rate of tax on proceeds from a business sale (compared to income tax of 40% or more for salaries over £50k) many entrepreneurs could look elsewhere to launch startups.
Lowering the threshold for BADR would make it harder for startups to attract top talent with stock options packages, the letter went on, which allow them to compete with higher salaries offered by big corporates.
The founders of other startups like unicorn fintech Zopa, fintechs Clearscore and Yonder and healthtechs Lantum and Patchwork were also signatories.
“Any revenue [hiking CGT] might raise in the short term would likely be more than offset by the damage it does to long-run productivity by stifling the growth of future startups,” they said.
Startups are spooked
Alongside scrambling to push through exits ahead of the Budget, entrepreneurs are increasingly reaching out for tax advice on relocating overseas, Angela Wood, managing director at tax consultancy ETC Tax, told Sifted last month.
She said that the number of enquiries about relocation have doubled or tripled in recent months.
One deeptech founder told Sifted that the loss of entrepreneurs’ relief could make them consider moving abroad.
“Entrepreneurs’ relief has been amended regularly over the years, but it remains the major tax incentive for people to found a business,” they said. “If [a founder] is aiming to build a business worth hundreds of millions of pounds, a reduction in entrepreneurs’ relief would be a strong incentive to emigrate.”
Read the orginal article: https://sifted.eu/articles/capital-gains-tax-jeopardise-uk-tech/
