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Britain’s Big Tax Overhaul: A Tough Budget for High Flyers and Founders
Richard Hadler
October 31, 2024
Richard Hadler here from Founders Capital. We scour Europe for the top 1% of Start-ups led by epic Founders, giving them access to our world-class investor & partner network to scale their ventures to heady heights.
I had marked this week to get my blog back up and running… but I’m starting to second-guess that decision, as here I am, tackling my first post just a day after one of the most contentious budgets in recent British history.
I know not everyone in the Founders Capital ecosystem are UK citizens, and you may not be too invested in our current economic shake-up. If that’s the case, feel free to skip this one, and tune in next week for more upbeat topics!
The headlines are already ringing: Britain’s wealthiest are in for a shake-up, as Chancellor Rachel Reeves pushes forward with a series of tax reforms targeting the non-dom regime. Concerns about a wealthy exodus have fallen on deaf ears as these changes roll out.
Regardless of our views on the new chancellor or this government, it’s clear they’re in a tough spot. Whatever they announced was bound to stir up a fair amount of disappointment across the UK’s different sectors.
Wednesday’s announcements highlighted the government’s plan to close loopholes that have allowed offshore trusts to dodge inheritance tax, marking a step toward phasing out long-held non-dom advantages.
The anticipated impact?
A significant £12.7 billion injection into the nation’s treasury over the next five years.
But Reeves didn’t stop there.
Labour’s broader £40 billion tax agenda is pushing the wealthy even further, extending to private equity, luxury real estate, private jets, and even private schooling. Fun times all around!
Unsurprisingly, foreign investors aren’t thrilled. Some are already setting up exit plans. One business magnate says facing a 40% inheritance tax on global assets is the last straw—he’s already packing for Switzerland. Another former UK resident, now dividing her time between Greece and Switzerland, pointed out that without non-dom benefits, there’s little reason to make the UK a long-term home base.
Still, despite murmurs of a mass exodus, government figures suggest only a fraction of the 74,000 non-doms will actually leave. Projections remain modest, with around 1,200 likely to relocate, plus a few more as rules tighten. Westminster appears confident that most will stay put…
I must admit, personally, I’m not as confident!
Meanwhile, private equity investors got their own unwelcome surprise: the carried interest tax rate is set to increase from 28% to 32% in April. By 2026, this income will also be reclassified as regular income but taxed at a specialised rate lower than the top income bracket. Although the Treasury says these rules are tailored for carried interest, some tax experts warn that this might bring unintended consequences down the road.
Capital gains tax is climbing too, rising from 20% to 24%, with some suggesting this could impact investor confidence in the UK’s venture and tech sectors. Angels and VCs should keep an eye on this shift, as it could reshape the investment landscape.
Real estate is taking a hit as well: stamp duty for non-residents buying second homes has increased, with a new surcharge pushing tax on a £10 million property to £1.8 million. Private jet taxes are also spiking, and private schools will start facing VAT charges in January. This isn’t exactly giving London’s property market a leg up, and industry insiders say London’s appeal among international buyers has been in gradual decline since 2014. This extra stamp duty is just adding fuel to the fire.
Looking further ahead, from 2027, pensions will be subject to estate tax unless transferred to a spouse, projected to raise an extra £1.46 billion by 2030. High-net-worth investors may want to revisit their retirement strategies to adapt to this shift.
For agriculture and business, new limits will be applied to inheritance tax relief starting in April 2026 for estates over £1 million. Family farms will get some protection, but larger estates will face a 20% inheritance tax on assets beyond that threshold. This adjustment aims to close a long-standing gap often exploited by major landowners, concentrating the impact on larger estates.
All things considered, it could’ve been a lot worse.
The earlier hints at more dramatic CGT increases had entrepreneurs and founders bracing for an even tougher blow. That said, it’s clear from these sweeping changes that Labour’s message is direct: top earners and wealthier estates are being asked to shoulder more of the tax burden.
For those in the angel investing community, this signals a rapidly evolving tax landscape in the UK, making it more important than ever to stay vigilant about how these reforms might affect future investments and financial planning.
Until next time!
Cheers,
Rich