UK’s Labour government raises capital gains tax rate on share sales, offering some relief for technology entrepreneurs who feared a more intense tax raid on the wealthy. Finance Minister Rachel Reeves announced the lower capital gains tax rate will increase to 18% from 10%, while the higher rate will climb to 24% from 20%, expected to bring in £2.5 billion.
The £1 million lifetime limit on capital gains from the sale of all or part of a company under business asset disposal relief (BADR) was maintained, quashing fears that the tax relief scheme for entrepreneurs would be scrapped. However, the rate of CGT applied to entrepreneurs selling all or part of their business under BADR will be increased to 14% in 2025 and 18% a year later.
Plans to increase the rate of National Insurance (NI) — a tax on earnings — for employers from 13.8% on a worker’s earnings above £9,100 per year to 15% on salaries above £5,000 a year were also announced.
The changes form a small part of sweeping fiscal changes laid out in the debut budget of the recently-elected Labour government in an attempt to close a multibillion-pound funding gap in public finances.
Prior to Reeves’ announcement, speculation over capital gains tax changes caused a backlash from tech founders and investors, with British tech lobby group Startup Coalition warning the plans could result in a tech “brain drain.”
A survey by Startup Coalition and private company database Beauhurst showed 89% of 713 founders and investors polled would consider moving themselves or their business abroad, with 72% having already explored this possibility, and 94% of founders would consider starting a future company outside of the U.K. if the government were to raise the CGT rate.
Tech entrepreneurs and investors are urging the government to return to its focus on fostering growth and innovation in the U.K., key messages in Labour’s election manifesto prior to the landslide win that saw Keir Starmer become prime minister.
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