Almost half of business owners said that they would consider moving their companies abroad if taxes were increased in the upcoming autumn budget, research shows.
A UK-wide survey of 500 business owners with turnovers of £5m upwards, conducted on behalf of professional services firm Evelyn Partners, found 48% would consider taking their business out of the UK if tax changes announced in the budget were clearly unfavourable.
There has been much speculation as to what policy changes chancellor Rachel Reeves would announce in her first budget on 30 October, in order to fill a gap in public finances.
Reeves has ruled out increases in headline rates of value added tax (VAT), income tax and national insurance for “working people”, but has signalled some tax rises would be on the cards.
The Times reported on Thursday that Reeves plans to announce an increase in capital gains tax (CGT) on shares and other assets but not on second properties.
The rate of CGT, which is levied on the profits made from the sale of assets, on shares is reportedly set to be raised by “several percentage points”.
Read more: How the UK’s capital gains tax compares with other countries
The higher rate of CGT on shares currently stands at 20%, while the levy on second properties goes up to 24%. CGT also applies to “carried interest”, which refers to share of profits paid to the manager of an investment fund, at a higher rate of 28%.
Rates of CGT in the UK are still much lower than the highest rates of tax levied on income, which starts at 20% for basic-rate payers and goes up to 45% for those on the additional rate band.
Evelyn Partners’ research found that if higher CGT were announced in the budget this would deter 46% of business owners surveyed from starting a new business.
CGT is charged at between 10% to 20% on the gain from selling a business. Some owners can qualify for business asset disposal relief, which means they would pay tax at 10% on all gains of qualifying assets. To qualify for this, they must have owned the business for at least two years and have been sole trader or business partner for that time.
It has also been speculated that Reeves could make changes to inheritance tax (IHT) business relief, which could make it more costly to pass businesses on to the next generation.
IHT is a tax levied on the estate of someone who has died, with a tax-free threshold of £325,000, at a standard rate of 40%. However, business owners can get relief from IHT of either 50% or 100% on some assets when passing them onto the next generation.
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Overall, Evelyn Partners’ survey also found that just a fifth of business owners strongly agreed that they expected the budget to be good for their business.
Toby Tallon, tax partner at Evelyn Partners, said that the findings made for “extremely worrying reading”.
“Following the prime minister’s comment in August that the budget was ‘going to be painful’ we’ve seen an influx of queries from business owners who are anxious about what any potential tax changes could mean for them personally and their businesses, with some mulling the option of becoming non-resident,” he said.
Business exits
Separate research from Evelyn Partners, released last week, found that nearly a third (29%) of business owners had fast-tracked business exit plans over the past 12 months. That represented an increase from 23% who said 18 months earlier that they had brought forward their exit strategies.
In addition, the Financial Times reported that executives had been ramping up their sales of shares in UK companies ahead of the budget. Data compiled by AJ Bell showed that directors in listed companies had sold a total of around £440m in shares since the general election on 4 July, at an average rate of £31m each week. That’s compared with an average pace of £14m a week in the previous sixth months.
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At the same time, an analysis from the Institute for Public Policy Research (IPPR), published on Thursday, said found that increasing capital gains tax (CGT) will not lead to lower investment, slower growth or reduced entrepreneurship.
The thinktank said it consulted with several millionaire entrepreneurs who asserted that aligning CGT with income tax would not deter them from making future investments, nor would it make them leave the UK.
IPPR said that equalising CGT with income tax rates would raise around £14bn a year. The thinktank highlighted that CGT is only paid by around 350,000 people, or 0.65% of the adult population, but most CGT revenue comes is generated from only 0.02% of the population who makes gains of more than £1m.
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