In September, U.K. capital gains tax (CGT) receipts hit their highest monthly level since 2008. As the country awaits the imminent Autumn Budget, business owners and investors are sounding the alarm as CGT is expected to rise above 28% for the first time.
While the tax currently affects just 3% of the population, the Chancellor should be more concerned about whether such changes could undermine the U.K.’s status as a global tech hub that attracts some of the world’s best entrepreneurs.
The U.K. has historically been a magnet for entrepreneurs, drawing them in with its unrivaled pools of capital and talent and enticing them to stay through schemes like the Enterprise Investment Schemes (EIS) and Seed Enterprise Investment Schemes (SEIS), which incentivize investment in early-stage U.K. businesses by offering substantial tax relief.
Despite these traditional strengths, the British business ecosystem suffers from critical blind spots in the business support lifecycle. As companies scale beyond early-stage tax relief schemes, founders face a stark cliff edge as government support abruptly drops.
The U.K.’s startup ecosystem risks losing its edge just as competition from rival markets begins to intensify. A CGT increase would widen the support gap still further, particularly affecting companies that have outgrown schemes like SEIS/EIS but are not yet large enough to absorb the higher tax burdens. The diminished luster of the Enterprise Management Incentive (EMI) scheme, if employee stock options are taxed as capital gains, and the potential loss of Entrepreneurs’ Relief would create additional pressure points.
Today, top talent has unprecedented mobility. They can start a business, recruit, and operate almost anywhere in the world. My firm, Antler, with 27 offices internationally, tries to reinforce this “build anywhere” mindset by providing global capital, internationalized assistance, and access to top talent in most major markets.
Antler’s last U.K. residency of 66 founders represented 27 different nationalities, yet they chose to build and grow their business in the U.K. As other financial centers such as Singapore and Dubai actively court international businesses with competitive tax regimes, the U.K. risks pushing away these founders—the very entrepreneurs and investors it needs to drive innovation and achieve the growth the new British government is so focussed on.
Of even greater concern, is whether the U.K. can retain the value that it does foster in early-stage tech. Despite nurturing world-class innovation, many of our most promising companies have consistently shunned listing publicly in the UK. For example, companies like chip designer Arm opt to list on America’s NASDAQ over the London Stock Exchange—and AI startups like 11x are moving to Silicon Valley. Once they reach a point of scale, the growth trajectories of these companies often lead them away from their U.K. roots. Senior leadership teams scatter, operational centers shift to other jurisdictions, and ultimately, the most valuable exits happen elsewhere.
The VC power law suggests that a small handful of companies will deliver the majority of returns. For example, just 0.6% of Y Combinator’s companies have contributed over 50% of their valuation growth. Regulators should consider CGT receipts from tech in the same way: If one of your potential big winners isn’t based in the U.K. for the long term, the Exchequer would lose massive tax receipts and value.
These challenges demand a more nuanced policy approach. The rumored CGT increase risks being myopic in its pursuit of short-term revenue at the cost of the U.K.’s future prosperity. While the previous government’s 2023 Mansion House reforms rightly focus on unlocking pension fund capital for later-stage growth, this effort to boost domestic investment could fail to reach its potential if founders and talent are driven away by punitive tax policies.
What we need instead is a fresh policy perspective that supports companies through their entire growth journey, not just in their nascency. By bridging the gap, the U.K. will once again be able to fully capitalize on its rich heritage of innovation, world-class universities, and financial services industry.
The U.K.’s startup ecosystem has taken decades to build, powered by careful policy choices that made it an attractive place for businesses. Now is not the time to chip away at its foundations, but to reinforce them, ensuring that the next generation of transformative companies not only starts here but also stays here.
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