We’re back with another interview in our series on GBI Magazine which focuses on the results of the UK general election and the changes we can expect to tax-efficient investments with a Labour government. So far, we have spoken to YFM Equity Partners and Symvan Capital, and Green Angel Ventures, and SFC Capital.
This time, Glen Stewart, Head of Business Development at Committed Capital. Glen reveals how the change in government has affected his company, and outlines how the new government will impact the SEIS and EIS markets.
1.) How has the result of the general election affected Committed Capital?
Labour’s victory in the recent General Election has not affected our company directly, however, there is widespread speculation around tax changes coming in Chancellor Rachel Reeve’s first budget that she has announced will be on 30th October 2024, that could positively impact EIS Fund inflows.
In 2023, Rachel Reeve’s, the then Shadow Chancellor, stated that if the UK had the same level of venture capital investment as a % of GDP as the US, this would mean £16 billion more venture capital investment – nearly double the level currently. This would mean more innovation, higher economic growth, and better living standards.
Labour commissioned a review (Start-Up, Scale-Up – Making Britain the best place to start and grow a business), that was published in September 2023, to give the party a road map to get there and present solutions: about incentives, access to capital, and how to make the most of entrepreneurial potential across the whole country and from a more diverse range of founders.
One of the five key recommendations in the report was on Incentivising investment and entrepreneurship, recommending that Labour should maintain and build on existing incentives, such as SEIS, EIS and the R&D tax credit system, to ensure investors and firms have the best possible incentives for growth.
The new Economic Secretary to the Treasury and City Minister, Tulip Siddiq MP, at the first sitting of the Finance Bill in January 2024 spoke about how;
“Both the EIS and VCT schemes remain crucial funding lifelines for the UK’s start-up community and the uncertainty created by the previous sunset clause deadline has risked hampering investor confidence in backing our high-growth firms.”
She went on to say that the relief is “pivotal in driving the supply of early-stage risk capital to some of the UK’s most exciting companies. It is crucial that, beyond simply pushing the sunset clause back 10 years, the Government take an active interest in improving these vital schemes, including by delivering the simplification measures that many are calling for to ensure that more companies and more investors can benefit from the tax reliefs available to them. I can confirm that the Labour party supports clause 11 [the clause to extend the EIS], which is a necessary intervention to ensure that investors can continue to invest with confidence in UK start-ups.”
Given the continued support of the EIS Scheme by the Labour Government and the potential tax changes noted below, that are anticipated in the forthcoming Budget, we believe that the new Government will be favourable for the EIS ecosystem.
2.) In what way(s) do you think the outcome of the UK election will impact tax policies on investments?
There has been widespread coverage on the Chancellor’s scathing attack on the economic inheritance left behind by the Conservatives. Rachel Reeves has outlined that the government inherited a £22 billion deficit and aims to address this through, spending cuts, social care and welfare adjustments and taxation.
Despite the desire to reduce the deficit, Labour has said it will “not increase taxes on working people”, which means no hikes to income tax rates, National Insurance or VAT, and the party has previously said it will not increase corporation tax either.
However, it is highly likely we will see some tax rises in other areas. Many market commentators think capital gains tax (CGT) and inheritance tax (IHT), and in particular, Business Relief (BR) could be in the spotlight, as well as rules around how pensions are taxed.
Various reports suggest that serious consideration is being given to aligning CGT rates with income tax rates, with some commentators suggesting taking this step could raise in the region of £7bn to £8bn for the Exchequer.
If CGT rates are indeed aligned with income tax rates, this is likely to increase inflows into EIS Funds, as investors seek to defer tax payable on gains being potentially taxed at an unpalatable rate, or investors who have previously deferred gains through EIS investments at a lower rate, re- deferring gains when they come back into charge to defer the point at which a potentially higher than expected CGT bill becomes payable, whilst benefitting from a further 30% income tax credit.
What is certain, is the forthcoming Budget is certainly not going to be boring, and tax advisers and financial advisers are going to be busy advising potentially on a raft of tax policy changes.
3.) In what way(s) will the Labour government’s pension policy impact tax-efficient retirement savings?
Rarely a Budget goes by without intense speculation that the system designed to encourage savers to put money into their pensions will be cut or altered. Currently, pension tax relief is delivered at the marginal rates of 20% (basic), 40% (higher rate), and 45% (additional rate), but there have long been calls for that to change.
The Labour government’s pension policies are expected to impact tax-efficient retirement savings in several ways.
Pension Tax Relief: Labour has not yet committed to changes of course, but there is speculation that they might reform the current pension tax relief system, and one option being considered is a flat-rate tax relief (e.g., 25-30%) for all, which could reduce benefits for higher earners while simplifying the system and reducing costs for the Treasury.
Tax-Free Pension Lump Sum: Labour might also review the popular 25% tax-free lump sum that retirees can withdraw from their pension pots.
Workplace Pension Reforms: Labour has expressed interest in making changes to workplace pensions to further benefit savers.
These potential changes will be closely watched, particular by those in or approaching retirement.
4.) How will the Labour government’s approach to wealth taxes influence high-net-worth individuals’ investment decisions?
Wealth taxes have a history of disincentivizing entrepreneurship, leading to reduced innovation and economic growth. High-net-worth individuals may respond to the introduction of a wealth tax by relocating and moving assets into a lower tax jurisdiction, reducing overall tax revenue.
While some OECD countries (e.g., Colombia, Norway, Spain, and Switzerland) still impose wealth taxes, many others have repealed them due to their minimal revenue generation, high administrative costs, and the risk of capital flight as noted above. Labour’s approach to wealth taxation will almost certainly influence investment decisions.
Glen has over 15 years’ experience raising capital for business’s in partnership with financial advisers and accountants utilising tax efficient investment wrappers such as Enterprise Investment Schemes and Venture Capital Trusts. During this time he has raised capital for a number of diverse businesses and asset classes including multi-media, property, renewable energy and AIM listed companies ranging from startups to well established and profitable companies. Prior to this, Glen spent the previous ten years at Coopers & Lybrand qualifying as a tax adviser, PwC and Deloitte specialising in High Net Worth, Expatriate tax and cross border advice before co-founding a successful accountancy and tax consultancy business based in Sussex.
