Britain faces warnings of tech exodus over tax plans ahead of high-stakes budget

British technology leaders and investors are raising alarms that the government’s proposed capital gains tax (CGT) hike could drive tech entrepreneurs out of the country. Finance Minister Rachel Reeves is reportedly considering increasing CGT to 39%, a significant jump from current rates. This proposed hike is part of broader fiscal changes set to be announced on October 30, aimed at addressing a substantial public funding gap.

Prime Minister Keir Starmer has downplayed the speculation, calling it "wide of the mark," but the concerns among the tech community are palpable. Entrepreneurs argue that a higher CGT would hinder the ability to build and grow businesses in the UK, potentially leading to a mass exodus of tech talent.

The government is also contemplating raising CGT on other assets and cutting the business asset disposal relief (BADR), which currently allows entrepreneurs to pay a reduced 10% tax on profits from selling their businesses. These changes could make the UK's CGT rate the second-highest in Europe, significantly affecting the country’s startup ecosystem.

In an open letter to Reeves, over 500 entrepreneurs, including prominent figures like Giles Andrews of Zopa, Rishi Khosla of OakNorth, and Victor Riparbelli of Synthesia, urged the government to reconsider. They warned that the proposed tax changes would weaken incentives for building businesses and could reduce overall tax revenue by discouraging entrepreneurship.

Adam French of Antler highlighted the growing anxiety within the UK tech sector, warning that the proposed tax changes could lead to a brain drain, with talent migrating to more competitive markets like Paris, Berlin, and the US. Venture capitalist Harry Stebbings echoed these concerns, predicting that the tax hike would drive entrepreneurs away from the UK en masse.

Contrarily, some voices, like those from the Institute for Public Policy Research, argue that aligning CGT rates with higher income tax rates is fair. They believe that CGT is not a primary factor in investment decisions, which are more influenced by access to financing and market conditions.

The coming weeks will be crucial as the government finalizes its budget plans, and the tech community watches closely, hoping for decisions that will support rather than stifle innovation and growth.