Prominent UK fintech founders have warned the new government that hiking capital gains tax risks forcing them out of the country, with nearly half already mulling relocation.
In a letter to Rachel Reeves, seen by City AM, grassroots industry group Fintech Founders urged the Chancellor not to alter capital gains tax “in a way which will reduce incentives for entrepreneurship and which harms UK competitiveness”.
The letter, signed by 66 founders and chief executives, said that while members of the group “do not want to relocate, founders are increasingly considering leaving the UK”.
It said 43 per cent of founders reported they were considering relocating out of the country.
“Given the risk, effort and time that go into starting and scaling a company, founders must feel it is worth their while to establish businesses in the UK, including knowing they will be rewarded upon exit,” the letter said.
“Relocation would negatively impact the UK business ecosystem by reducing the number and diversity of businesses in the UK – contracting tax revenue from fintechs and reducing the number of skilled jobs in the UK.”
Signatories to letter include ClearBank CEO Charles McManus, Zopa co-founder Giles Andrew, Iwoca founder and CEO Christoph Rieche, Allica Bank CEO Richard Davies, and Pockit founder and CEO Virraj Jatania.
Labour is mulling an increase in the rate of capital gains tax in its inaugural Budget on 30 October. The rate is currently between 20 per cent and 28 per cent for higher-earning taxpayers, depending on the asset.
The Treasury has reportedly modelled raising the rate to 33 per cent or 39 per cent, although prime minister Keir Starmer said on Monday that the latter figure was “pretty wide of the mark”.
“Founders and employees of start-up and high growth businesses typically forgo income they might earn working for established businesses and are rewarded for the risk they take building new businesses through equity,” the letter said.
“A key part of the expected reward for this risk is the significantly lower tax rate that capital gains benefit from relative to income. Ensuring that the CGT regime in the UK continues to maintain this benefit for entrepreneurs is critical to the UK remaining an attractive place to start and grow a business.”
Labour has warned its Budget will be “tough” as it rushes to plug an alleged £22bn “black hole” in the public finances left by the previous Conservative government.
The letter acknowledged that while Reeves was “faced with tough decisions”, it argued “the only long-term solution is economic growth”.
“Meaningful growth is driven by entrepreneurship and SMEs, more so than by the large multinationals,” it added.
“Ensuring conditions on the ground are such that they encourage the founding and scaling-up of British businesses is crucial to getting the UK economy back on track.”
Fintech Founders launched in 2016 and now comprises a network of more than 450 entrepreneurs.
It is co-chaired by LendInvest founder Christian Faes and Koodoo co-founder Sebastian McDermott, both of whom penned the letter to Reeves last month.
The Treasury did not respond to a request for comment. It is unclear whether Reeves has responded to the group.
Alongside its commitment not to raise corporation tax, Fintech Founders welcomed the government’s move to extend the Enterprise Investment Scheme and the Venture Capital Trust scheme by a decade to April 2035.
These government-backed schemes offer tax reliefs for investors in UK start-ups.
