Andy Burnham’s recent ascendancy within the Labour Party has stirred unease among Britain’s technology investors over potential changes to capital gains tax (CGT) policies, particularly the introduction of an exit tax targeting entrepreneurs who relocate abroad.

Currently, business founders who leave the UK can sell their enterprises later without incurring UK capital gains tax on the profits. However, there is growing pressure from within Labour circles to implement a system that taxes asset gains at the point of departure. This so-called exit tax would effectively require entrepreneurs to pay CGT upfront when leaving the country. Although Burnham’s office has not formally announced any new CGT policies, speculation around such measures has already caused concern among the tech community.

Proponents of an exit tax argue it would align the UK with other G7 countries (excluding Italy) and recapture an estimated £500 million annually lost due to departing shareholders. For example, Noah Law, a Labour MP, has publicly supported imposing exit taxes to stem capital flight. Similarly, Louise Haigh, a close ally of Burnham and former transport secretary, has advocated bringing capital gains tax rates closer to income tax levels. Miatta Fahnbulleh, MP for Peckham and an economic advisor to Burnham, has long endorsed raising CGT rates to increase tax equity between wealth and income.

The rate of capital gains tax currently stands at 18% for basic-rate taxpayers and 24% for higher-rate taxpayers. Proposals to harmonize CGT with income tax could lead to rates rising to 20%, 40%, or even 45% depending on earnings, a move that has elicited mixed reactions. Former health secretary Wes Streeting, who is viewed as a leading contender for the role of chancellor, has suggested reforming CGT as part of broader tax changes to stimulate growth. Streeting supports measures such as indexing gains to inflation, providing targeted reliefs for founders, and maintaining fairness in tax treatment to encourage investment in UK-based businesses.

Despite these arguments, many entrepreneurs and business leaders warn that increased CGT rates and an exit tax could deter investment and discourage startup creation. Brenda Hobday, chief executive of Boss Events Group, expressed deep concern about entrepreneurial activity shrinking if these taxes were introduced, fearing it would harm innovation, job creation, and long-term tax revenue. Nimesh Shah, CEO of Blick Rothenberg, suggested that ongoing speculation about tax hikes is already causing some investors and entrepreneurs to reconsider their plans, potentially leading to a brain drain.

Brent Hoberman, founder of lastminute.com and chairman of Founders Forum, highlighted the broader economic risks, cautioning that "constant drumbeat of uncertainty" around tax policy could undermine the UK’s ambition to become a global technology hub.

A 2024 report from the Centre for the Analysis of Taxation recommended implementing an exit tax along with CGT at death and partial indexation to curb tax avoidance. The think tank estimated such reforms could generate an additional £14 billion in annual revenue across CGT and income tax combined. Much of this revenue would come from aligning the two tax rates, reducing incentives to convert income into capital gains artificially.

With these competing perspectives and significant revenue potential, the debate over CGT reform under Burnham’s Labour leadership appears poised to intensify, even as fears persist that attempts to tighten capital gains rules could prompt entrepreneurs to leave the UK before any new policies take effect.