Some of the UK’s most prominent entrepreneurial voices are urging the Treasury to introduce a targeted tax incentive designed to ensure proceeds from successful exits circulate within the domestic start-up ecosystem rather than drifting into passive wealth management or overseas opportunities.
The proposal, called Repeat Entrepreneur Relief, would allow founders who sell shares in their companies and reinvest the profits in a new business within 12 months to defer capital gains tax indefinitely. The liability would only become apparent when the new shares were ultimately sold without further reinvestment.
The idea was put forward in various forms by the Founders Forum Group, Schroders and UK Private Capital as part of a recent Treasury consultation on the tax treatment of entrepreneurs. All submissions make broadly the same point: while the UK tax code does a good job of helping businesses grow, it does far too little to encourage founders to reuse their capital and experience once they have cashed out.
UK Private Capital, the industry body representing venture capital and private equity firms, argued that there is a compelling case to tailor tax incentives to the post-exit phase, when founders have significant capital, hard-earned operational expertise and need to make decisions about where to locate and where to put their money next.
Founders Forum Group, co-founded by Brent Hoberman and Jonnie Goodwin, drew a comparison with the American Qualified Small Business Stock program, in which founders pay no capital gains tax on gains up to $10 million, or 10 times their original investment. The group described this exemption as a key driver of the reinvestment culture that has long characterized Silicon Valley, where exit proceeds routinely flow directly back into the next generation of companies.
A survey conducted by the Founders Forum Group found that almost nine in 10 founders said such a move would increase the likelihood of reinvestment in the UK, with more than seven in 10 describing the impact as significant.
The lobbying comes at a sensitive time for the government’s relationship with the business community. Since taking office, Chancellor Rachel Reeves has gradually increased the rate of business asset disposal relief, formerly known as Entrepreneurs’ Relief, from its long-standing rate of ten percent to fourteen percent last year and then to eighteen percent from this month. The standard capital gains tax rate remains 24 percent.
Many founders have argued that the increases make the UK a less attractive place to set up and exit a business, although a number of tax analysts have countered that the previous relief was poorly targeted and did relatively little to encourage truly productive reinvestment.
The government has attempted to offset these changes by introducing new incentives in the earlier stages of the business life cycle. In November, Reeves expanded a package of measures that make it easier for founders to offer employees equity and raise capital. These regulations came into force last week.
A Treasury spokesman described the moves as evidence the government has the right economic plan, pointing to changes to the corporate governance incentives system and venture capital tax systems that are expected to support around £100m of additional investment a year.
It remains to be seen whether the Treasury is prepared to go further and close the post-exit gap that lobby groups have identified. However, the volume of submissions suggests that the argument for relieving repeat offenders is gaining serious traction.
