‘Exit tax’ on UK entrepreneurs ruled out by business department
Jonathan Reynolds seeks to quell fears of levy on companies spun out from UK universities that move abroad
Business secretary Jonathan Reynolds is seeking to quash speculation that the government is planning an exit tax for companies that move abroad after spinning out of British universities.
Industry had been awash with rumours that Andy Burnham’s Labour government would impose a new tax to discourage UK-based companies from leaving the country with intellectual property developed with taxpayer support.
There are growing expectations that new chancellor John Healey will raise business taxes in the October Budget to address the worsening public finances, given Labour’s promise not to change the main personal tax rates.
But Reynolds has privately reassured business leaders that the government will not be pursuing an exit levy, which is typically based on a company’s valuation if it floats abroad or is acquired by an overseas buyer.
One figure in the Department for Business, Innovation, Science and Trade categorically rejected the idea that ministers are looking at an exit tax.
“The department has been clear that exit levies are unequivocally ruled out,” they told the FT. “Keeping companies in the UK is key and it must be done by providing them with the environment and incentives they need.”
Speculation about a potential exit tax has been linked to concern over the loss of some fast-growing British companies in recent years.
A report by the Royal Academy of Engineering found that more than 2,000 spinouts had emerged from British universities since 2010, including a handful of “unicorns” with valuations of over $1bn. But an array of high-profile tech firms had ended up in foreign hands.
Semiconductor company Arm was bought by SoftBank of Japan in 2016 and floated in the US in 2023, although it has retained a headquarters in Cambridge.
Dan Neidle, founder of the think-tank Tax Policy Associates, said ministers should have quelled fears about the idea of an exit tax months ago.
“I know entrepreneurs who left the UK during the pre-Budget exit tax rumour last year,” he said. “It was one of the most foolish unforced tax errors by a British government.”
Speculation about tax rises has been heightened by the recent global bond sell-off.
Following the Spring Statement earlier this year, Healey’s predecessor Rachel Reeves had a buffer of just under £24bn against the government’s main fiscal rule. But surging market borrowing costs since then and higher inflation have potentially halved that headroom.
Labour’s 2024 election manifesto ruled out increases to National Insurance contributions, VAT or the basic, higher or additional rates of income tax.
That has prompted concern in the City that the government could consider business taxes such as a higher levy on banks, a rise in capital gains tax or an exit tax on entrepreneurs.
Craig Harrison, a partner at the JMW law firm, recently warned of the “real possibility that wealth creators will leave in large numbers due to fear of an exit tax”. He said: “If it is a possibility, why wait for it to be introduced?”
In 2024, a report by academics at the London School of Economics and the Centre for the Analysis of Taxation urged ministers to introduce an exit tax.
“The UK is unusual among international peers in not levying any tax on people who leave the country after making substantial capital gains whilst living here,” it said.
The report said there were already anti-avoidance rules covering individuals who move abroad temporarily to dispose of assets and then return.
“But anyone emigrating permanently, or leaving for more than five years, can currently take all of their unrealised gains with them fully tax-free. This results in a major ‘leak’ in the capital gains tax base,” it noted.
Last year the Startup Coalition, which represents tech start-ups, organised an open letter from more than 150 entrepreneurs in the tech world asking Labour not to introduce an exit tax.
They urged the government to “focus instead on making the UK the most attractive place in the world to build and scale the next trillion-dollar companies”.
Dom Hallas, executive director of the Startup Coalition, on Wednesday welcomed the reassurance from the Business Department that there would not be an exit tax.
“Obviously we want our universities to be attracting the best people to build here and that means carrots not sticks. So we’re delighted that the government has rethought the plans,” he told the FT.