Startup Coalition and Beauhurst’s Capital Gains Tax Survey

A new survey we ran with Beauhurst found that founders and investors are seriously concerned about a potential tax increase to capital gains tax (CGT) at the Budget. A majority of respondents indicated that they would consider or had already considered moving their business from the UK, following media speculation of tax rises that would bring CGT in line with income tax.

An increase in CGT to a level anywhere near the higher tax threshold would be catastrophic for the UK’s attractiveness to start, grow and scale high-growth businesses of the future. 87% of founders surveyed expressed that they would feel less motivated to build a large-scale business in the UK. Increasing the number of scaling companies will be central to making a stepchange in the UK’s growth trajectory, drastic changes to CGT would clearly put the government’s growth mission in jeopardy.

Founders recognise that the government understands the importance of boosting private investment into the UK and appreciates the positive action to increase investment, with a successful International Investment Summit this week, by progressing work on the Pensions Review at pace, and demonstrating a keen focus on unlocking the planning system. But the survey shows that plans to hike CGT would fly in the face of all this good work, with 85% of angels being less likely to continue investing into UK companies and 73% of institutional investors having already investigated moving their fund’s focus away from the UK.

We are calling on the Government to use the budget to set out their longer term thinking regarding their fiscal framework for the UK and their views on the role that business taxation should play to calm the nerves of founders.

 

Key stats

Founders were asked for their reaction to recent rumours about raising the CGT rate, up to an equalisation with income tax, and scrapping Business Asset Disposal Relief.

97% of founders and investors think that increases to CGT up to an equalisation with income tax would have a ‘somewhat negative’ or ‘very negative’ impact on the UK’s entrepreneurial ecosystem

89% of founders surveyed would consider moving themselves or their business abroad

72% of founders have already investigated moving themselves or their business abroad

 

Just amongst the 513 founders surveyed there is:

£2.6bn of turnover at risk of moving abroad

22,000 jobs at risk of moving abroad

Applied to the whole UK tech ecosystem this equates to £756b of turnover and 3.46m employees at risk – and 94% would consider starting a future company abroad if CGT hiked

 

Disincentivises founders to grow their business

87% of founders would feel less motivated to build a large-scale business in the UK

88% would take cash out of their business earlier instead of reinvesting for growth

 

Knock-on impact of CGT hikes will significantly hit investment

82% of founders would be less likely to undertake angel investment

85% of angels would be less likely to continue investing into UK companies

73% of institutional investors already investigated moving their fund’s focus away from the UK

 

A total of 713 individuals completed the survey, including:

524 founders of UK-registered companies

103 angel investors into one or more UK-registered companies

55 institutional investors into UK-registered companies (VC, PE, etc.)

31 professional advisors to UK-registered companies

 

Respondents had the option to answer the survey anonymously, or choose to give details on the companies they had founded. The option to participate anonymously ensured that respondents could voice their honest opinions, without hesitation. 279 respondents opted to submit the name of the UK companies they had founded, 195 of which have been classified as high-growth.

Those named companies have collectively raised £2.19b. These companies span a range of industries, with 84 categorised as software businesses, 24 as financial and professional services, 20 as data analytics businesses, and 13 as marketing and advertising. Regardless of whether they submitted the survey anonymously, all respondents were asked questions relating to the number of people they employ, annual turnover, projections for future growth and strategic plans for the future.