The recent announcement of increased Capital Gains Tax (CGT) rates in the UK’s 2024 Autumn Budget is set to take effect from October 30, 2024, will see the lower rate of CGT rise from 10% to 18% and the upper rate from 20% to 24%.
This significant tax hike has led to speculation about a possible exodus of tech entrepreneurs from Scotland, as founders may seek more favourable tax environments to grow their businesses and reap the rewards of their innovations.
David Ovens, who serves as the co-head of Edinburgh investment group Archangels, argued that tax increases “fly in the face of the government’s pro-business commitments”.
“Given the well-documented importance of SMEs [small and medium-sized enterprises] to economic growth, these changes are a major cause for concern. Business assets disposal relief (BADR), in particular, has been a crucial incentive for entrepreneurs and management teams, encouraging risk-taking and innovation. Nearly doubling the rate, from 10 per cent to 18 per cent in two years’ time, will disproportionately affect those who have invested their time, energy and resources into building businesses from the ground up – not necessarily the wealthiest CGT payers.
“As for CGT, while the rise might not be as steep as some feared, even this marginal increase will contribute to the perception of the UK as an unfavourable place to invest.”
Andrew Noble, a Partner at Edinburgh-based venture capital firm Par Equity, has echoed this criticism of the CGT rise, arguing that the hike will have disastrous implications for investment, particularly in Scotland:
“Labour’s manifesto was built on a plan to kickstart economic growth. Unfortunately, however, the hike in Capital Gains Tax (CGT) runs in direct contradiction with this mission and disincentivises entrepreneurs (and investors) to build the next generation of companies to meaningfully reform the UK.
Furthermore, this will have a greater impact on regional innovation in Scotland as current and future entrepreneurs weigh up the most attractive destinations to start and scale their businesses in the next 10-15 years.
As a venture capitalist focused on the North of the UK, we know that many entrepreneurs start businesses in Scotland because of the region’s strength in tech and advanced manufacturing, following a successful career in London and further afield. This group of entrepreneurs is highly mobile and also have the option to relocate overseas. Indeed, a recent survey of 500 business founders found that as much as 72% are now looking to move abroad to countries with more favourable economic structures.
The rise in CGT undermines the strength of the UK’s entrepreneurial spirit, making it harder to attract and retain the very innovation and talent that can grow our economy to a more prosperous future.
“It’s crucial for the government to support our risk takers, business builders and wealth creators. Without them, we’ll lack the growth and investment needed to build a strong, resilient economy for the benefit of Scotland and the rest of the UK.”
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