The founders lobbied the Treasury for a capital gains tax break for reinvesting
Some of Britain’s most prominent business voices are pressing the Treasury to introduce a targeted tax designed to keep the proceeds of successful exits flowing into the home-first system, rather than drifting into passive wealth management or offshore opportunities.
The proposal, called “helping repeat entrepreneurs”, would allow founders who sell shares in their companies and reinvest the profits in a new business within twelve months to defer capital gains tax forever. The liability will only arise when the new shares are eventually sold without being reinvested.
The idea has been put forward in various ways by the Founders Forum Group, Schroders and UK Private Capital as part of the Treasury’s recent discussions on the tax treatment of entrepreneurs. Each proposal makes the same broad case: that the UK’s tax structure does a reasonable job of supporting businesses as they grow, but does very little to encourage founders to reinvest their capital and knowledge once they cash out.
UK Private Capital, the trade body representing venture capital and private sector companies, said there was a compelling case for aligning tax incentives with the post-exit stage, when founders hold capital, have hard-earned operational expertise and face decisions about where to base themselves and where to send their money next.
The Founders Forum Group, co-founded by Brent Hoberman and Jonnie Goodwin, compared it to the American Qualified Small Business Stock scheme, where founders do not pay capital gains tax on profits up to $10 million or ten times their initial investment. The group described that release as a key driver of the reinvestment culture that has long defined Silicon Valley, where exit funds are funneled back into the next generation of companies.
Research by the Founders Forum Group found that almost nine out of ten founders said such a measure would make them more likely to invest in the UK again, with more than seven out of ten describing the result as important.
This lobbying comes at a critical time regarding the relationship between the government and the business community. Since taking office, Chancellor Rachel Reeves has gradually increased the rate of business property exemption, the tax known as entrepreneurs’ relief, from ten to fourteen percent last year, and to eighteen percent from this month. The standard capital gains tax rate remains at twenty-four percent.
Many founders argued that the increase made Britain a less attractive place to set up and do business, although several tax analysts argued that the previous exemption was poorly targeted and did little to encourage real-world reinvestment.
The government wants to balance these changes and new incentives in the earlier stages of the company’s life cycle. In November, Reeves added a package of measures to make it easier for founders to offer equity to employees and raise capital, provisions that went into effect last week.
A spokesman for the Treasury pointed to the measures as evidence that the government has a sound economic plan, highlighting changes to the business management grants system and corporate income tax schemes that are expected to support around £100 million of additional investment every year.
Whether the Treasury is willing to go ahead and fix the post-exit loopholes identified by lobbying groups remains to be seen, but a number of submissions suggest the argument for re-liberating entrepreneurs is growing.
