Doubling the capital gains tax (CGT) to as high as 45% could hinder growth in the UK, according to some of the country’s leading fintech executives.
Instead, these fintech leaders are advocating for an exemption for “earned capital gains,” which would protect the equity of startup founders and employees from potential CGT increases in the upcoming October Budget.
CEOs of fintech startups typically compensate for lower salaries with equity stakes in their companies.
Speculation that Chancellor Rachel Reeves might double CGT in the next month’s Budget has raised concerns that fintech professionals could leave the UK, while employees of rapidly growing tech firms might seek employment at more stable, larger corporations.
Ms. Reeves has emphasized the need for economic growth, promising to elevate the UK to a leading position among G7 nations.
However, it’s precisely these high-growth digital businesses — which the government has been promoting — that are essential to driving economic expansion.
Paul Taylor, founder of the £2 billion banking technology firm Thought Machine, told City AM: “The level of concern within the tech community is rapidly increasing.”
He added, “We’re potentially going from one of the most favorable capital gains tax systems to one of the least favorable. It would be the highest rate in Europe. I can’t see why anyone would choose to start a business here.”
Schachar Bialick, founder of the payments fintech Curve, warned that “within a year or two, we may see more companies going under,” as he shared with City AM.
Bialick noted that UK fintechs would struggle to compete with giants like Google due to government actions.
Meanwhile, the entrepreneur network Helm shared with Bloomberg that in a survey of its 400 members, 60% indicated they would “consider” relocating from the UK if the tax were raised.
Alex Hearn, founder of the reinsurance tech company Slipcase, conveyed to Bloomberg that “I’ve been speaking with many UK founders at various stages of their ventures who are seriously looking into relocating their companies.”
According to Hearn, top destinations include Bermuda, Dubai, and the United States.
A higher capital gains tax could very well push many entrepreneurs to either forgo starting businesses or move to locations with more favorable tax environments, he added.
The Labour Party has identified capital gains tax as a levy that primarily affects the wealthy. In fact, 41% of CGT revenue comes from less than 1% of taxpayers, and the top 1% contributes 29% of income tax revenues.
Currently, capital gains tax rates range from 10% to 28%, averaging around 21%, compared to the highest income tax rate of 45%.
Reports suggest that Treasury officials are drafting plans to align these two tax rates.
During the 2021-22 financial year, Britons paid an unprecedented £16.7 billion in CGT.
Implementing such a tax increase could generate an additional £14 billion, according to researchers at Warwick University, bringing the total to approximately £31 billion. This amount exceeds the £22 billion deficit the government claims it is facing this year.
