Leading figures in the UK's fintech industry have issued a stark warning to the new government, cautioning that a potential increase in capital gains tax could drive entrepreneurs out of the country.

In a letter addressed to chancellor Rachel Reeves first reported on by City AM, grassroots industry group Fintech Founders urged against any changes to capital gains tax that might "reduce incentives for entrepreneurship and which harms UK competitiveness".

The letter, bearing signatures from 66 founders and chief executive officers, revealed that 43 per cent of founders were contemplating relocation outside the UK. This potential exodus has raised concerns about the negative impact on the British business ecosystem, including a reduction in tax revenue and skilled jobs.

Charles McManus, chief executive officer of ClearBank, emphasised the importance of maintaining a favourable environment for entrepreneurs. "Given the risk, effort and time that go into starting and scaling a company, founders must feel it is worth their while to establish businesses in the UK, including knowing they will be rewarded upon exit," he stated.

The Labour government is reportedly considering raising the capital gains tax rate in its upcoming Budget on 30 October. Current rates for higher-earning taxpayers range between 20 per cent and 28 per cent, depending on the asset. While the Treasury has modelled increases to 33 per cent or 39 per cent, prime minister Keir Starmer recently suggested that the higher figure was "pretty wide of the mark".

Fintech leaders argue that the existing tax structure is crucial for attracting and retaining talent in the sector. "Founders and employees of start-up and high growth businesses typically forgo income they might earn working for established businesses and are rewarded for the risk they take building new businesses through equity," the letter explained.

While acknowledging the tough decisions facing the chancellor, the fintech community stressed that "the only long-term solution is economic growth". They argued that meaningful growth is primarily driven by entrepreneurship and SMEs, rather than large multinationals.

The letter also welcomed the government's decision to extend the Enterprise Investment Scheme and the Venture Capital Trust scheme until April 2035, which offer tax reliefs for investors in UK start-ups.

Fintech Founders, launched in 2016, now represents a network of over 450 entrepreneurs. Co-chairs Christian Faes, founder of LendInvest, and Sebastian McDermott, co-founder of Koodoo, spearheaded the letter to Reeves last month.

As of now, it remains unclear whether the chancellor has responded to the group's concerns. The Treasury has not yet commented on the matter.

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