Experts Comment: How Higher Capital Gains Tax May Affect Founders And Investors

The UK’s government may raise capital gains tax on share sales, which might take rates up by a few percentage points. Current rates range between 20% and 28%, depending on the type of asset. While the sale of second homes may not face new rates, existing reliefs might be cut to increase revenue.

Reports suggest a rise as high as 39% is being considered, though the government has not confirmed this. Business Asset Disposal Relief (BADR) and Investor Relief, which help reduce CGT rates for certain investors, are also under review and could see changes. Abolishing or limiting these reliefs might be part of the government’s strategy to address financial pressures.
 

Why Is Capital Gains Tax Under Review?

 
The government is dealing with a £22 billion shortfall and is looking for ways to fill the gap. With promises in place not to raise income tax, VAT, or National Insurance for workers, attention has moved toward CGT. Although CGT makes up a small part of overall tax income, officials see changes in this area as a way to raise funds.

BADR and Investor Relief, which have together cost the government around £1.5 billion annually, are under particular scrutiny. The upcoming budget, scheduled for 30 October, will show whether these reliefs will survive or be limited. Meanwhile, investors are keeping a close watch, weighing their options as rumours of CGT changes swirl.
 

What Are Government Officials Saying?

 
Chancellor Rachel Reeves has confirmed that taxes will increase but has not given details about which ones. She indicated that changes are needed to stabilise public finances, which she claims were poorly managed by the previous government. Prime Minister Keir Starmer tried to downplay speculation about a possible CGT rate increase to 39%, calling such predictions “wide of the mark.”

Although Starmer reassured investors that CGT might not rise as high as some fear, the possibility of changes has left business owners uncertain. Labour’s focus remains on investment growth, but with tax increases on the horizon, businesses are bracing for the impact. Many are now rushing to complete transactions before the budget to avoid any sudden tax rises.

With the budget only days away, investors and business owners are preparing for changes that might come, which could affect their financial planning. The details will only become clear on 30 October, leaving the markets and taxpayers waiting anxiously for what may come.
 

What Will The UK’s Expected Rise In Capital Gains Tax Mean For Founders And Investors And Their Businesses?

 
Founders and investors have shared their fears, concerns, hopes and expectations when it comes to their businesses, especially, and this is what they’ve said…
 

Our Experts:

Jeff Dewing, CEO & Founder, Cloud

“If Capital Gains Tax is significantly raised, it could stifle investment in the country, discouraging growth and innovation – we need to make sure that doesn’t impact SMEs”

“I’ve always supported the Labour principle that wealthier individuals and businesses should shoulder more of the burden. Businesses have a responsibility to society—it’s time to prove if they truly care about their communities or just shareholders and dividends. Where possible, businesses should absorb costs to protect consumers. But we must also acknowledge that businesses need to be profitable and manage costs effectively to be sustainable.”

“SMEs, which drive 80% of the UK economy, will make the key decisions that support communities. Global giants tend to focus solely on shareholders.”

Chirag Mehta, Co-founder, Know You More

“As a small business owner, the last few years have been extremely challenging. With inflation rising and market competition intensifying, many small businesses, including ours, are struggling with cash flow challenges. Any increases in corporate tax would have a particularly negative impact. Despite our best efforts to avoid raising prices, we would be forced to pass these costs onto our clients, who are facing the same problems.

“Additionally, our employees, including myself, are also feeling the strain. We have a limit on how much we can raise wages, and any tax increases on middle earners, such as capital gains or inheritance tax, would exacerbate their financial stress.

“The majority of people within the UK are in this same situation, and though the focus, as always will be on balancing public finances, I also predict, with Keir Starmer’s recent workplace policy focus, that there will be an acknowledgement of the state of many people’s financial situations, and I predict he will discuss, and prioritise gradual and well-thought-out changes over quick fixes that may have unintended consequences. A measured approach would help businesses and employees navigate these difficult times without undue hardship.”

Sid Pourfalah, CEO, Concrete4Change

CLIMATE CHANGE/SUSTAINABILITY

“The UK has the potential to become a climate tech powerhouse but we need initiatives that ensure Britain is the right environment for companies to grow and make genuine change.

We need initiatives that support the migration of high-skilled entrepreneurs and scientific talent to come to the UK to start, build, or join companies. Targeted migration policy is not spoken about enough and gets lost in the wider migration debate, but ultimately, to support any of the government’s economic and sustainability goals, we need the best people to come here and contribute to companies in the UK.

Additionally, incentives to adopt lower emission technologies should be rolled out. Typically premium prices are added to green alternatives, and technology providers must continue to bring prices down. It would be great to see more temporary measures to incentivise purchases, such as the zero road tax for electric vehicles from the past.”

GENERAL

“Unfortunately, the startup ecosystem is often affected by broad stroke legislation that is intended to target later stage private equity ecosystems. When this is forgotten, we risk collateral damage to the UK startup scene. Any increase to capital gains taxes will likely dampen the flow of new investment into UK-based venture capital funds.

If the UK wants to be a leader in private and public markets, whereby startups are supported with domestic capital from inception through to either exit or listing on a UK stock market, then increasing capital gains is counterintuitive. Initiatives like the Enterprise Investment Scheme (EIS) and Business Asset Disposal Relief (BADR) are great incentives, but we need more inflows into early-stage venture creation rather than less. UK tech startups have a vital role to play in the growth of the wider economy.”
 

Claire Crompton, Co-founder, TAL Agency

“The potential impact of an increase in UK Capital Gains Tax on founders, investors, and businesses is multifaceted and could have far-reaching consequences, both potentially positive and negative. An increase would likely reduce the financial incentives there are for founders to start and grow businesses, as their potential returns would be cut. This could discourage budding entrepreneurs – as they are afraid of higher costs – and fewer startups appearing on the scene. From an investor perspective, a higher CGT could result in lower returns on their investments, making UK startups less attractive compared to other markets. This could result in less funding available for UK businesses, and therefore impact their growth.

“Businesses themselves could also be negatively affected by a change to capital gains. Higher taxes could reduce the value of businesses, making them less desirable for acquisition or investment. Those businesses may also be less likely to pursue growth strategies that involve high spending levels, as this could bring higher taxes. The potential increased admin costs associated with complying with more complex tax regulations could also put a strain on businesses’ increasingly limited resources.

“A CGT increase could have unintended knock-on effects on the wider market, such as encouraging founders and investors to relocate their businesses or investments to countries with more favourable tax schemes. This could lead to an exodus of talent and capital from the UK, hindering the country’s economic growth and competitiveness.”

Mark Sweeny, Founder and Chief Executive, de Novo Solutions

“To say this is extremely disappointing is an under-statement. Government’s role is to create an economic environment where businesses can flourish so wealth can be generated and distributed in its many forms. Entrepreneurs and small businesses are the life blood of the British economy and put themselves and their families on the line day-in day-out taking many financial risks. The Chancellor’s tax policy has completely ignored this community despite it representing 99% of businesses with the final kick in the teeth being the Government is now going to take the lion’s share of any wealth generated away which for many represents a lifetime of endeavour.

“Despite several entrepreneurs offers to assist in recent months in overcoming the many challenges we all face, HM Government has not been forth coming in terms of engagement. The outcome will sadly be a harsh lesson in macro-economics, as both human and financial capital seek better opportunities outside the country. This is a generational backwards step in economic development for UK Plc, and many businesses that could have thrived here, creating jobs and wealth for many will no doubt along with their founders find sunnier climates”.

Cas Paton , CEO, OnBuy.com.

“As an entrepreneur and firm believer in British businesses maintaining a UK tax nexus, one of my biggest concerns is the potential increase in Capital Gains Tax. If we move CGT too high, especially to income tax levels, then the country is going to stall. Assets won’t be sold as frequently; people will hold their shares, hold their houses, and hold their assets. We will risk diminishing the UK’s entrepreneurial spirit, as the upsides to investing in business reduce. A CGT hike will harm the entire middle market, affecting the stock market, house sales, rental market, and business landscape.

A balanced approach is essential to mitigate the challenges the Government faces. We need a tax policy that supports entrepreneurship, long-term growth and stability across the UK business landscape, as well as our public services.”

Phil Kwok, CEO and Co-founder, EasyA

“Labour will set out its vision to ‘future proof’ the economy. The first stage will be tax reform, the second, the long-term backing of industries like tech where the UK is globally renowned.

“If the government sees tech as the bedrock of economic productivity and innovation, the approach seems clear – fostering an environment which encourages and nurtures these innovators so they can explore the full potential of all Web3 has to offer.

“Through my experience as a recent graduate, entrepreneur and CEO, we are sitting on a bank of rising talent. There’s a new generation of entrepreneurs with the creative minds and drive to pursue new innovations in Web3. It is all happening at an exciting time – Web3 and AI will change the way we work, so we need to be driving this dialogue.

“Any approach demands an agile mindset. For too long, there has been a degree of complacency, assuming traditional education paths like tertiary degrees will spur on tech innovation. Yet we face a digital skills gap – people are not being equipped with the digital skills required to engage with technologies that will define the future of work, like blockchain and AI. Being creative, and embracing new forms of education to complement the university degree process is vital.

“Another area is support for young companies responsible for leading on new tech innovations. Available capital for early-stage startups is low in the UK, with investors adopting a risk averse approach. This is in contrast to the US, where early-stage startups can tap into investment and scale at pace. There are countless examples of renowned US startups whose rapid rise and success is down to the funding they secured early on.

“To be globally competitive, we need initiatives to support these young companies. In particular, we should be taking advantage of London’s reputation as a tech hub, which it has successfully built over the last two decades.

“Initiatives which bring together business leaders, investors, the public sector and academia will address this. The talent is there – it is up to us to tap into it!”

Varun Bhanot, Co-founder & CEO, Magic AI

“The expected rise in Capital Gains Tax (CGT) is a concern for many founders and small business owners including myself. For entrepreneurs, a higher CGT rate may discourage investment in new ventures and make it less attractive to scale or exit their businesses. When founders sell a company, the gains often fund their next entrepreneurial endeavour, creating a cycle of innovation and growth. Higher taxes could disrupt this cycle, making it harder for entrepreneurs to reinvest and contribute to the economy. It’s very worrying. Thankfully I can rely on communities such as Virgin Startup and their loan funding program which is unaffected by these things generally’.”

“I don’t think the expected rise in Capital Gains Tax will deter new start-ups, as most business founders are motivated by opportunity, innovation and the desire to build something meaningful. That said, tax policies can impact a business’s chance of success and tax calculations influence founders’ decisions around investment, hiring and long-term strategy. Increased taxes need to come out of the business somewhere, and often end-up being passed on to customers. Businesses benefit from stable and predictable tax environments, so taking a long-term view on what supports a thriving economy in the UK is key.”

Lisa Miles-Heal, CEO, Silverfin

“Capital gains tax changes pose a significant threat to UK innovation and investment. Software businesses rely heavily on investors willing to take risks, knowing that a higher return is possible if they succeed. An increase in capital gains tax rates could discourage this essential risk-taking behaviour.

“It’s an issue that doesn’t just affect the tech sector but small businesses and entrepreneurs across the board. If investors shy away due to diminished returns, it will directly impact the UK’s ability to grow and innovate, which could have long-term consequences for the UK economy.

“We need policies that incentivise growth and risk, not stifle it. The UK must remain competitive as a hub for investment. Otherwise capital could flow to other markets, leaving the UK with fewer startups and opportunities for economic development.”