Business owners look at leaving UK over prospect of capital gains tax rise

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A growing number of business owners are considering leaving the UK over concerns that the government is planning to increase capital gains tax in the Budget this month, tax experts have warned.

A senior financial planner at Evelyn Partners said he had seen “a spike in inquiries about what steps are needed” to move overseas if capital gains tax is increased.

“The level of anxiety has shot up since the prime minister said [in August] there will be ‘painful’ decisions in the Budget,” said Jason Hollands of Evelyn Partners.

Nick Ritchie, senior director of wealth planning at RBC Wealth Management, said there had been an “uptick” in questions on relocation over the past few weeks.

Advisers said their clients were increasingly worried about a rise in capital gains tax in the Budget on October 30. Nimesh Shah, chief executive of tax advisory firm Blick Rothenberg, said “the urgency has been crystallised recently” noting that the government “hasn’t ruled out CGT going up”. He added that any increase to CGT could happen on the day of the Budget or in April.

Labour has already ruled out raising national insurance, income tax and VAT in the run-up to the election. The government is also poised to water down its tax raid on non-doms — wealthy people who are resident in the UK but whose permanent home is overseas.

Capital gains tax on the sale of businesses tends to range between 10-20 per cent — lower than the 20 to 45 per cent levied on income.

“Business owners are fearing a bloodbath because of the messaging from government on higher taxes, so they’re thinking they need to take some dramatic action, because life-changing costs could be about to hit them,” Shah said. “So they’re thinking of accelerating their business sale or leaving the country.”

He explained that moving overseas and becoming non-resident means that business owners can then sell their UK company without incurring capital gains tax, so long as they do not return to the UK within five years.

“Every entrepreneur is talking about whether to move overseas,” Shah added. “Some have done it already.”

Andreas Adamides, chief executive of Helm, a member group for founders of rapidly growing companies said this was “not just chatter”.

“We have never seen anything like this,” he said. “There are members who are in the process of a [business] sale who have told buyers they will be pulling out if a sale doesn’t go ahead before the Budget and that they won’t sell if CGT goes up.”

He said entrepreneurs “took risks setting up their businesses and didn’t put money into pensions while they grew their businesses as their eyes were focused on growth”.

According to a recent survey by Helm, six in 10 of its members said they would consider leaving the UK to avoid a capital gains tax increase.

Dominic Ponniah, co-founder of Cleanology, which has 1,400 employees, said: “Labour’s rhetoric and actions so far make businesses feel unwelcome, which is the opposite of what they should be doing. Without question, I will be starting my next business outside the UK.”

Benjamin Ludzker, chief executive at Kays Medical, a family business, said: “Increasing CGT to 40-45 per cent would take nearly half the value built over decades. If these changes happen, I’d consider leaving the UK.”

However, some entrepreneurs have said they support increased rates of capital gains tax. These include Graham Hobson, founder of Photobox, a photo printing company that acquired Moonpig, later selling for a reported £400mn.

He said he would “love to see capital gains tax rates aligned with income tax”, adding he didn’t “see why passive income, which is generally favoured by the wealthiest in society” should be taxed less than income from work.

“I am a rich person and I will not leave — as many others won’t,” Hobson added.

The Treasury said: “We do not comment on speculation around tax changes outside of fiscal events.”