UK Labour Government Raises Capital Gains Tax, Offering Some Relief to Tech Entrepreneurs
The UK Labour government has announced plans to increase the capital gains tax (CGT) rate on share sales, providing some relief for technology entrepreneurs who feared a more significant tax raid on the wealthy. Finance Minister Rachel Reeves increased the lower CGT rate from 10% to 18% and the higher rate from 20% to 24%, expected to generate £2.5 billion in revenue.
Reeves maintained the £1 million lifetime limit on capital gains from the sale of all or part of a company under business asset disposal relief (BADR), addressing concerns that the tax relief scheme for entrepreneurs would be scrapped. However, the CGT rate applied to entrepreneurs selling all or part of their business under BADR will increase to 14% in 2025 and 18% in 2026.
The government’s plans to increase the rate of National Insurance (NI) for employers from 13.8% to 15% on salaries above £5,000 per year were less welcome for businesses. These changes are part of sweeping fiscal measures in the Labour government’s debut budget to close a multibillion-pound funding gap in public finances.
Prior to the announcement, the anticipation of CGT increases caused concern among tech founders and investors, with the Startup Coalition warning of a potential tech “brain drain.” A survey conducted by the Startup Coalition and Beauhurst revealed that 89% of founders and investors would consider moving themselves or their business abroad, with 72% already having explored this possibility.
Following the budget speech, Startup Coalition’s executive director Dom Hallas acknowledged that while the tax increases were challenging for founders, “entrepreneurs’ biggest fears have not materialised and some balance has been struck.”
Tech entrepreneurs and investors are urging the government to focus on growth-oriented policies and reforms that make it easier for startups to attract talent and ensure regulators prioritize innovation and growth. Edgar Randall, managing director of UK and Ireland at Dun & Bradstreet, emphasized that business decisions are influenced by more than just fiscal policy, and entrepreneurs consider the entire ecosystem when making decisions.
