Calls are growing for the government to carve out an allowance on capital gains tax (CGT) for employee share schemes amid fears a sweeping hike could gut the UK of talent and hammer smaller companies’ ability to attract staff.
A group of fintech founders yesterday launched a push to derail any plans for a blanket hike in CGT by calling for an allowance on so-called ‘earned capital gains’, which could protect the shares held by staff in their own companies.
Smaller firms often make up for lower salaries by offering their staff equity. Suggestions that the Treasury could roll out a 45 per cent tax on those shares have triggered fears of an exodus away from the UK or into safer salary-paying jobs at bigger firms.
In a budget submission today, the Quoted Companies Alliance, which represents the UK’s smaller listed companies, has added to the calls with a push for the Treasury to exempt gains made under employee share schemes from any CGT increase.
“We consider that a simple rise in CGT would reduce people’s appetite to invest, result in individuals moving abroad, harm entrepreneurship and growth within the UK, and ultimately, could potentially raise less tax,” the QCA said in its submission.
“For the growth of the economy, it is essential that business leaders are willing and able to invest in growing their business and hiring staff.”
Any increase in CGT could “materially decrease the attractiveness of employee share ownership and seriously weaken the growth company ecosystem,” the QCA added.
Among its other calls were a cut in stamp duty on shares outside the FTSE 100 and a simplification of the sprawling ISA regime.
The warnings come as Chancellor Rachel Reeves prepares to hike taxes at her first budget in October to fill an alleged £22bn “black hole” left by the previous government. While Reeves has ruled out raising income tax, national insurance, and VAT, she has repeatedly refused to deny that it will lift the charge on capital gains.
Currently, the rate sits at 20 per cent on all chargeable assets other than residential property, where the charge is 24 per cent. In contrast, the highest rate of income tax is 45 per cent.
Treasury officials have reportedly been drawing up plans to equalise the two. Such a move could raise as much as £16bn, according to researchers at the University of Warwick.
A Treasury spokesperson said yesterday “the Chancellor has been clear that difficult decisions lie ahead”.
Fintech founders including Paul Taylor, boss of the $2.7bn (£2.06bn) banking technology firm Thought Machine, yesterday told City A.M. “the level of alarm in the tech community is just escalating and escalating” over the potential of a blanket hike in CGT.
Innovate Finance, which represents more than 250 fintech companies, also cautioned against the move yesterday and said the Treasury should recognise that “not all capital gains are equal”.