- Fear that CGT could rise to 39%
- Dubai ‘is hot on the lips’
- UK budget on Wednesday
A talent drain of thousands of tech entrepreneurs from the UK to the UAE could be on the way due to tax rises the new Labour government is expected to introduce on Wednesday in its first budget.
More than four in five company founders and investors say they will consider relocating, according to a survey preempting the hike.
The new chancellor of the exchequer in London, Rachel Reeves, is considering increasing the capital gains tax (CGT) entrepreneurs must pay on the sale of their business from as little as 10 percent to between 33 and 39 percent, aligning it with income tax rates.
The rise would be part of efforts to fill a £22 billion ($28 billion) fiscal gap Labour says was left by the previous, Conservative, government.
As well as raising the standard 20 percent CGT rate for higher-rate taxpayers, Reeves could also restrict or scrap Business Asset Disposal Relief (formerly known as Entrepreneur’s Relief), which allows entrepreneurs to pay a reduced capital gains tax of 10 percent on sale profits.
British tech founders have been exploring relocation options in the face of these threats, with Dubai emerging as a top destination because of its favourable low tax and pro-entrepreneurship environment.
“The UK will absolutely lose founders. Among my founder friends group, everyone is talking about this. Dubai is hot on the lips,” Danny Buck, the Manchester-based founder and CEO of Craftd, a men’s jewellery brand, tells AGBI.
“The innovation and pull by leaders who back entrepreneurs is why it’s tempting. Not to mention the standard of living, tax benefits and wonderful weather.”
Buck, who says his businesses have created jobs for more than 200 people, says: “Why would someone create an environment where the odds are against them and there’s no reward for succeeding if you do?”
His concerns echo the findings of a survey this week by the Startup Coalition, a London-based organisation that claims to represent startup founders, of more than 700 UK founders and investors.
The report found that nearly 90 percent would consider relocating their business overseas if capital gains tax rises to a level anywhere near the higher tax threshold.
Founders polled said the move would be “catastrophic” for the UK’s attractiveness as a place to start, grow and scale high-growth businesses of the future.
The majority said they would feel less motivated to build a large-scale business in the UK and have already investigated moving themselves or their business abroad.
“If this tax change happens, there’s no point in building anything of value in the UK,” Buck says.
“I pay tax when I create, tax when I spend, and now I’d lose 39 percent to CGT. I don’t want to work two thirds of my life for free. The UK is making it harder to succeed.”
Though CGT contributes only a small share of total tax revenue, it has become a focal point because of the government’s commitment not to raise taxes on workers and businesses.
More than a thousand entrepreneurs have signed an open letter to Reeves this week, warning of the punitive impact of reducing key tax reliefs which incentivise risk-taking and entrepreneurship.
“We now live in a time when the best and brightest can work from anywhere,” Daniel Priestley, a British entrepreneur and business author, says.
“I’m in several WhatsApp groups of UK entrepreneurs. There’s only one conversation trending at the moment – how to leave the UK. It is likely that the UK will lose thousands of entrepreneurs, technologists, innovators and engineers in the year ahead.
“Countries need to offer a competitive value proposition if they want to attract high earners.
“Many talented UK founders are now moving to Dubai. They are attracted to the growth mindset, low crime, high quality of life and, of course, low taxes on offer.
“The UK has started treating success like it’s a problem that needs to be solved. Taxes have hit generational high water marks, with corresponding services under-performing.”
Barney Hussey-Yeo, a London-based angel investor and founder of the AI
money app Cleo, says the UK is already seeing some of its best founders move to the UAE.
“The competitive tax regime, high standard of living and rapidly growing tech scene are a draw for any scale-up founder,” he says.
Hussey-Yeo pointed out that Nik Storonsky, the billionaire co-founder
and CEO of the financial technology company Revolut, has already
expanded the fintech’s operations to Dubai.
“Revolut is the largest tech company founded in the UK over the last decade,” Hussey-Yeo says. “This shows how competitive the UAE is at attracting the best entrepreneurs from the UK.”
Douglas Alexander, UK minister of state at the Department for Business and Trade, said at FII in Riyadh on Tuesday: “The first thing I would say ahead of Rachel’s budget tomorrow is [that] Britain is back and we are open for business.
“What is our thinking as to how to stimulate that growth? Firstly, we need to repair a fiscally impaired balance sheet for the United Kingdom.
“So there will be steps that we will take in the budget tomorrow to give fiscal stability and more broadly financial stability to the United Kingdom. Our mantra is: stability, investment and reform.”