17 December 2020

Proposed Changes to Capital Gains Tax: Industry Bites Back

Earlier this month, the Office of Tax Simplification (OTS) published

Earlier this month, the Office of Tax Simplification (OTS) published its first of two reviews of Capital Gains Tax (CGT), outlining four ways in which the tax could be reformed. But we believe these proposals could seriously damage the UK’s startup community, by removing one of the key policies that rewards entrepreneurs (and their employees) for the immense risk they take in starting and scaling a business. Last week, we published our response to the proposals, explaining the ways we believe they threaten the future of UK startups, and quantifying the impact on individuals.

We were overwhelmed with the responses we received to this article, with entrepreneurs, advisors, and industry-leaders alike corroborating our concerns, and offering their help to dissuade the Government from enacting these changes.

With the permission of those who contacted us, we’d like to share some of the comments we’ve received.

“If the rate of capital gains tax is taken to the top rate of income tax, many of us would seek alternatives to creating a chargeable event subject to tax, which would lead to a loss of revenue to HM Treasury.” Lord Howard Leigh of Hurley, Co-Founder & Senior Partner, Cavendish

Lord Howard Leigh of Hurley, Co-Founder & Senior Partner, Cavendish

We agree with Beauhurst's interpretation of the downsides the suggested changes to CGT could have for entrepreneurs and entrepreneurialism. finnCap believes that entrepreneurs will be the engine of recovery in 2021 and need to be supported, not taxed further." Sam Smith, Founder & CEO, finnCap

Sam Smith, Founder & CEO, finnCap

“One entrepreneur who responded to the government’s consultation said that without a lower rate of tax on his eventual sale, he would not have worked nearly so hard to grow the business. This couldn’t be clearer—cutting the incentives to invest in and scale businesses risks a devastating blow to the UK’s entrepreneurial economy.” Dr Henry Lahr, Senior Lecturer in Finance, Open University

Dr Henry Lahr, Senior Lecturer in Finance, Open University

See Henry’s own analysis of the proposed changes here.

The government needs to support entrepreneurs and startups through the right tax schemes, not just for the sake of the economy, but also for the government to meet its own goals. Our portfolio typically spend 50% of their cash on research and development so startups will be the key to hitting the government's own target 2.4% of GDP spent on R&D." Mark White, Investment Director, Midven

Mark White, Investment Director, Midven

UK entrepreneurs have been able to rely upon CGT reliefs since the 1980s. Had these not been available it would have been so much harder to grow a business and employ folks. Like many founders, we have relied on reinvesting over the years, sometimes taking no income to ensure we could hire and pay for the right teams, counting on the fact that we would get our reward when we eventually encashed the business. It would appear that, without these reliefs, the solution may be to emigrate and run the business from another country! Kate Jolly, CEO, Briars Group

Kate Jolly, CEO, Briars Group

The CGT changes proposed by OTS will destroy the UK's competitiveness as a place to attract entrepreneurial talent and investment. This is a time when we need our wealth creators to help rebuild the economy after COVID and Brexit, not deter them from doing business." Michael Dean, Entrepreneur and Co-Founder, Avamore Capital

Michael Dean, Entrepreneur and Co-Founder, Avamore Capital

This issue runs deeper than the surface level tax that entrepreneurs pay on their gains—the second and third order effects hit at the heart of the entrepreneurial ecosystem as a whole, challenging the very foundations that we rely on for the thriving innovation and growth that startups create" Rob O'Donovan, Co-Founder & Chairman, CharlieHR

Rob O'Donovan, Co-Founder & Chairman, CharlieHR

Although the purpose of the tax changes are to create a more equitable system, the undesired side effects will be entrepreneurs circumventing the tax by paying larger dividends, arranging corporate structures abroad or even worse deciding to not start/continue with their endeavours." Tom Hudson, Host, When Unicorns Fly: The Startup Podcast

Tom Hudson, Host, When Unicorns Fly: The Startup Podcast

We still have a stream of incoming responses, so if you’d like to get involved then please do send us a message. We also encourage you to sign and support the open letter from our friends at E2E, and subscribe to our newsletter to keep up to date with our work on this, and learn more about our plans to lobby government.