UK government accused of putting people off from starting new businesses, after raising taxes by £40bn

Chancellor Rachel Reeves today delivered the biggest tax-raising budget since 1993, as she increased spending on the NHS and schools.

Here are some of the key announcements impacting tech startups and VC:

-A rise in capital gains tax, which is a tax on the sale of assets and shares, which will increase from 10 per cent to 18 per cent on basic rate payers, and 20 per cent to 24 per cent for those on a higher rate.

-Employer National Insurance contributions, a levy paid directly from a firm to the government, which will rise from 13.8 per cent to 15 per cent.

-Abolishment of “non-dom” status, which allows those UK residents whose permanent home for tax purposes is outside of the UK, not to pay UK tax on money they earn outside of the UK.

-Carried interest, which will impact VC, will go up to 32 per cent from 2025, ahead of further changes in 2026.

-Business Asset Disposal Relief (BADR), previously known as Entrepreneur's Relief, will remain at 10 per cent this year, before rising to 14 per cent in April 2025, and to 18 per cent from 2026/27.

-The government says it’s maintaining £20.4bn worth of R&D investments for 2025/26

-The government says it will undertake a cross-government review of technology adoption for growth, innovation and productivity.

Phil Bungey, co-founder and chief operating officer at UK wealthtech Prosper, said:

“There is a real chance that the tax changes put young people in the UK off starting new businesses.

"But the most immediate fallout from these changes is we risk losing the entrepreneurs leading mid to late-stage fintechs in the UK — i.e., the people who generate the most capital. 

"But the beauty of startups is that they’re agile. Founders that are unhappy with the changing regulatory environment are looking to do business in more favourable tax regimes.

"Competing governments could see this as a real window of opportunity to poach our brightest -and most well-capitalised - fintech talent.”

Charles McManus, chief executive, ClearBank and co-chair of the Innovate Finance Unicorn Council, said: 

“The combined increase in capital gains tax and National Insurance - as well as the drop in the threshold for National Insurance Contributions for businesses - could have a significant knock-on effect in terms of the number of entrepreneurs establishing businesses in the UK, as well as already exacerbating the challenges we have already seen around UK businesses listing in other markets”

Dom Hallas, executive director of the Startup Coalition, said:

"Any budget with increases to CGT, gradual increases to BADR and taxes on investors going up is never easy.

"Today will be hard for founders seeing taxes on their businesses rise. But... given some of the disastrous predictions and worries - Government has listened to ensure that entrepreneurs’ biggest fears have not materialised and some balance has been struck. Bad, but not disastrous."

Santosh Sahu, founder & CEO of Charac, the SaaS platform, said: 

“The Chancellor's support for small businesses, as well as research and development, is welcome, yet tax raises for high-net-worth individuals, who are often pivotal investors in early-stage companies, may drive them out of the UK.

“Higher taxes on capital gains, for example, may lead these investors to seek out other, more favourable markets, which could ultimately stifle the flow of funding critical to the UK’s vibrant startup ecosystem.”

Russ Shaw, founder of Tech London Advocates and Global Tech Advocates, said:

"The rise in Capital Gains Tax risks stifling investment at a time when we need it most.Evidence from the US shows that higher capital gains deter start-up funding, which could directly contradict the government’s growth ambitions.

 “Britain’s entrepreneurs are key to our global competitiveness, bringing vital investment and pioneering solutions in sectors like healthcare and green energy. Dissuading this investment risks slowing our progress and weakening the UK’s reputation as a top innovation hub. Higher CGT could drive talent and capital elsewhere, just when we need them to power job creation and economic resilience."

Philip Salter, founder of The Entrepreneurs Network, said:

“Entrepreneurs will be somewhat relieved that the Capital Gains Tax (CGT) rate wasn’t hiked as high as many feared.Similarly, there were rumours that Business Asset Disposal Relief (BADR) would be scrapped, so the worst-case scenario was avoided.

“Nevertheless, BADR will still be ratcheted up over the coming years, meaning Britain will become an increasingly unattractive place to both start and exit a company.


"We know that many entrepreneurs are already looking to move their business from the UK – and this only makes that move more compelling. This is why 1,250 of the UK’s most ambitious entrepreneurs signed our letter against such changes.”

Lead image: Freepik.