Fintech Bosses: Will UK Government Tax Hike Damage Growth?

Doubling capital gains tax (CGT) as high as 45% could stymie growth in Britain, some of the UK’s top fintech bosses have warned. 

Instead, fintech bosses have called for a carve-out of “earned capital gains”, which could shield the equity of start-up founders and staff from any CGT hike in this October’s Budget.  

CEOs of fintech startups often make up for lower salaries by offering equity in companies.

Talk of Chancellor Rachel Reeves doubling CGT in next month’s Budget has triggered fears of fintech workers leaving the UK or workers in fast-growth tech businesses fleeing to safer, large companies.

Ms Reeves has prioritised economic growth, promising to push the UK to the top of the G7 nations. 

But it’s precisely these fast-growth digital businesses that the Government has talked up which would be at the heart of any growth economy.

Paul Taylor, founder of £2 billion banking technology provider Thought Machine told City AM: “I will say the level of alarm in the tech community is just escalating and escalating.”

Taylor said: “They’re literally talking about going from one of the best capital gains regimes to the worst. It would be the highest rate in Europe. I don’t think anybody would start a company here – why would you?”

Schachar Bialick, founder of payments fintech Curve, added that “within a year or two, you’re going to see more companies failing”, he told City AM.

UK fintechs would be unable to compete with Google because of what the Government is doing, Bialick told City AM. 

Meanwhile, entrepreneur network Helm told Bloomberg that six out of ten in a poll of its 400 members said they would “consider” leaving the UK if the tax was increased.

Alex Hearn, founder of reinsurance tech firm Slipcase, told Bloomberg that he had “spoken to many UK founders in the last year at different stages in their journeys that are actively exploring new homes for their companies”. 

Bermuda, Dubai and the US were top of the list, said Hearn. 

Higher CGT would “no doubt push a lot of these people over the edge to either not set up at all, or shift to somewhere more welcoming,” Hearn told Bloomberg. 

Labour has identified CGT as a tax that specifically targets the wealthy. Forty-one per cent of the CGT take comes from fewer than 1% of CGT taxpayers. And the top 1% of taxpayers contribute 29% of income tax revenues.  

Currently, capital gains tax rates range from 10% to 28% - an average of 21% - compared to the highest income tax rate of 45%.

Treasury officials have reportedly been drawing up plans to equalise the two. 

Britons paid a record £16.7bn in CGT in the 2021-22 financial year.

Such a tax hike could raise a further £14bn, according to researchers at Warwick University – lifting the total to around £31bn – more than filling the £22bn hole in public finances the Government claims it is staring into for just this year.

**************

Make sure you check out the latest edition of FinTech Magazine and also sign up to our global conference series – FinTech LIVE 2024. 

**************

FinTech Magazine is a BizClik brand.