The UK could lose a “sizeable number” of business owners if taxes are raised in Labour’s first Budget, the Chancellor has been warned.
Nearly half (48 per cent) of 500 business owners with turnovers of £5m upwards said they would consider moving their business abroad if tax changes on 30 October were clearly unfavourable, according to professional services firm Evelyn Partners.
Labour has ruled out increasing the main rate of corporation tax above 25 per cent and has pledged to freeze headline rates of VAT, income tax and national insurance (NI) contributions for “working people”.
But speculation is rife that other taxes that directly affect decision making for business owners – mainly increasing capital gains tax (CGT) rates and curtailing Business Relief, which can help reduce inheritance tax (IHT) – will be adversely changed in the Budget.
Toby Tallon, tax partner at Evelyn Partners, said he has 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: “The experience of the pandemic taught us that many businesses were able to quickly pivot to remote working.
“With the technology available today some business owners may decide to up sticks and move either themselves or their operations – or both – abroad if they felt they weren’t being made welcome in the UK.
“Charging CGT at a lower rate on the gains from business sales compared to that levied on income recognises the significant personal and business risks that entrepreneurs take when starting and growing a business.”
CGT is currently charged at between 10 per cent to 20 per cent on the gain from selling a business, compared to the 20 per cent to 45 per cent rates levied on income.
Only 20 per cent of business owners strongly agree that the Budget is expected to be good for their business, according to Evelyn’s study.
A HM Revenue & Customs (HMRC) report earlier this year warned that: “Very large tax rate rises can reduce exchequer yield due to taxpayer behavioural impacts.”
Mr Tallon said this was a “clear message” that adverse changes to taxes such as CGT rates would have a direct effect on the investment decisions that business owners make in the UK.
He added: “This would also have a knock-on effect on the creation of jobs in towns and cities across the UK as well as hampering the much-needed economic growth that the new Government says it wants to prioritise.
“Clearly, public finances are under pressure, but if the Chancellor wishes to ‘create a tax system that supports wealth creation and increases business investment’ as she stated at the International Investment Summit on 14 October, we urge her to listen to the UK business community as illustrated by the results of our survey.”
In a further blow to Rachel Reeves, the research also found that if higher CGT rates are introduced in the Budget, this would deter 46 per cent of business owners surveyed from starting a new business.
Jeremy Hunt, the former Chancellor, lowered the maximum rate on CGT on residential properties from 28 per cent to 24 per cent in his Spring Budget.
Rowan Morrow-McDade, tax director at chartered accountants Alexander & Co, said it would be “surprising” if Ms Reeves did not put this figure back up to at least 28 per cent, but that it could be much more than this.
People trying to take action with regards to property sales may face a bigger challenge to get around potentially higher CGT rates.
CGT is payable on the sale of second homes and buy-to-let properties.