In Autumn Budget 2024, Chancellor Rachel Reeves’ first Budget, she stated the need to “drive growth, promote entrepreneurship, and support wealth creation”.
The latest GDP figures make grim reading and as her second Budget approaches, we offer opinions on how successfully last year’s Budget and other UK tax measures are meeting those needs. We also summarise the established tax measures fostering entrepreneurship and growth, and consider further steps that the Chancellor could take in Autumn Budget 2025.
Autumn Budget 2024 changes and their consequences
The significant tax changes for Entrepreneurs in the 2024 Budget were related to capital gains tax (CGT), national insurance, and inheritance tax (IHT).
Capital gains tax and reliefs
Last year’s Budget increased the headline rate of capital gains tax from 20% to 24% and increased the rate of Business Asset Disposal Relief (BADR) to 14% until 5 April 2026 and then to 18% going forward.
National insurance contributions
With effect from 6 April 2025, national insurance contributions for employers increased from 13.8% to 15% with a reduction in the secondary threshold from £9,100 to £5,000. Whilst there was some relief for smaller employers with a rise in the employment allowance, for most employers this has significantly increased the costs associated with employing staff.
Business Property Relief
The Chancellor also announced a cap on Business Property Relief (BPR), a relief from IHT. The changes mean that businesses owners will no longer be able to leave businesses with a value in excess of £1m to their children on their death free of IHT without very careful planning which may involve making business decisions to mitigate unfair, and unfunded, IHT liabilities.
Our view on the impact of these changes
Even with the best will in the world, it’s hard to see exactly how increasing CGT for business owners – increasing the costs associated with employing staff, and making it hard for family businesses to transition to the next generation without crippling IHT liabilities – would do anything to positively move the dial on entrepreneurship and growth.
While there are still ways to plan in order to avoid IHT on family businesses, it’s arguably unfair that business owners should have to do this. The point of BPR was to enable family businesses to pass from generation to generation without saddling the next generation – and ultimately the business – with huge IHT liabilities. Now, an unexpected death of an unmarried business owner could very easily result in a business being completely decimated by the resulting IHT liability.
Many taxpayers would find it hard, in fact impossible, to understand the reason for this change. It certainly doesn’t feel like a policy which supports a positive environment for entrepreneurship. Arguably, it feels more like a policy designed to encourage more businesses to be sold to overseas buyers and private equity funds.
The Chancellor also repeated the previously announced extension of Enterprise Investment Schemes (EIS) and Venture Capital Trust (VCT) schemes and committed to “work with leading entrepreneurs and venture capital firms to ensure our policies support a positive environment for entrepreneurship in the UK”.
Given the financial state of the country, it is undeniable that the Chancellor is in a bind; even if the Autumn Budget 2025 isn’t her last Budget, her choices are limited. The question then is, what should she actually be doing to encourage entrepreneurship?
What tax measures currently exist to promote entrepreneurial spirit?
A good place to start is understanding what tax measures exist, and have recently existed, to encourage people to start and run successful businesses.
It is probably appropriate to put the reliefs into three buckets: relief for investors, relief for the business and relief for the founders.
Relief to encourage investors
The reliefs available to encourage investment are fairly comprehensive.
EIS was introduced in 1994 to encourage investment into early-stage businesses. It was followed in 2012 by seed EIS (SEIS) which focusses on investment into startups. Both offer very generous tax reliefs for investors, including a complete exemption from CGT on disposal. According to a report by the Enterprise Investment Scheme Association (EISA) and Beauhurst, together EIS and SEIS have accounted for over £34 billion of private investment into over 59,000 businesses.
The VCT scheme, introduced in 1995, sits alongside EIS and SEIS offering a more diversified method of investing into early stage businesses.
By any measure, the tax reliefs offered by EIS, SEIS and VCTs have been exceptionally successful in encouraging investment into new UK startups.
Hence, once a business is up and running, provided it is sufficiently attractive to investors, tax reliefs will play a part in ensuring that those businesses will receive funding.
The Chancellor repeated in the 2024 Budget the news that EIS and VCT reliefs will be extended to 2035.
Relief for the business
For startups in their early stages i.e. when profits are lower, they may benefit from the lower rate of corporation tax (CT) which is 19% on the first £50,000 of profits.
R&D tax credits are also available for businesses spending on the development of new processes, services or technologies. Hence many startups do benefit from the relief offered by R&D. However, for small and medium sized businesses (SMEs), the relief on R&D spending is lower than it was and is now aligned with the relief available for larger businesses.
Arguably therefore, there are no real tax breaks available at a corporate level to help businesses grow and succeed in their early years.
Relief for founders
BADR (previously Entrepreneurs’ Relief) is less favourable than it has ever been.
The mechanism for computing relief has changed over time. On its introduction – in 2008 when Taper Relief was removed – it was an effective 10% rate on the first £1m of eligible gains. It increased to £2m, then £5m and sat at £10m from 2011 to 6 April 2020. From 11 March 2020, the relief was slashed to £1m and its benefit was then diminished to its lowest ebb of 14% relief on the first £1m of gains from 30 October 2024. If the Chancellor’s proposals play out, the position for entrepreneurs will be worsened such that they will pay 18% on the first £1m of qualifying gains from 6 April 2026.
SMEs make up circa 60% of employment, and half of turnover, in the private sector. If the Government is committed to a growth agenda, it’s hard to understand an apparent reluctance to incentivise the individuals to take the risk that is involved in starting a business.
Many of our clients are entrepreneurs who left behind the certainty of a very good job with a guaranteed salary, bonus, benefits and pensions to join a world of uncertainty, risk and potential financial ruin. If the Government want entrepreneurs to take those risks, there’s an obvious benefit to incentivising them to do so.
The truth is undoubtedly that people who are motivated to start a business will always find a way. But they may choose not to do it in the UK. Autumn Budget 2025 is a crucial opportunity to address that. Growth comes at a cost, but that cost is incomparable to the cost of failing to grow.
What should the Chancellor do for entrepreneurialism?
While tax measures will always prove debatable, here are four recommendations based on our experience as tax advisers to growing businesses and their teams.
1. Introduce a new relief for founders
If the Chancellor wants founders and employees working hard to grow their businesses and therefore the economy, she needs to incentivise them to do it. Alongside BADR, she should introduce a relief for founders of businesses that recognises the risks they take, and growth they create.
A new relief for founders should be introduced, offering an uncapped 10% relief for individuals holding at least 25% of the shares in trading businesses that they work in full time where those shares have been held for at least three years. This would distinguish between founders and employees and would still see founders paying CGT at higher rates than EIS investors.
BADR for employees must be retained. Businesses benefit from incentivised and engaged employees and tax reliefs can help businesses to motivate staff.
2. Reverse the IHT property relief changes
U-turn on the change to BPR. Incentivising owners to sell their business or crippling businesses with unfunded IHT liabilities is bad for the economy.
This also applies to the change to Agricultural Property Relief (APR), which is not specifically considered in this article but is also critically important.
3. Reduce the cost of employing people in early-stage businesses
The rise in employers’ national insurance in Autumn Budget 2024 has hit small businesses very hard, making it more difficult for them to recruit to drive expansion. This is entirely contradictory to a growth mandate.
4. Provide tax certainty and stability
In Chancellor George Osborne’s Plan for Growth unveiled in 2011, he aimed to make the UK one of the most competitive tax systems in the G20. This plan recognised the need for the UK’s tax system to be “certain”.
Business owners and entrepreneurs have endured year after year of economic uncertainty. They need a government that promises and delivers a tax system which is certain and stable. Without it, we may continue to see our best and brightest entrepreneurs leaving the UK for countries which are offering not necessarily better, but more predictable, tax regimes.
How BKL can help
Our tax specialists help entrepreneurs to understand UK tax complexities and structure their businesses and personal finances tax-efficiently. This covers all points in the business lifecycle, and all aspects of your business ownership and wealth.
For a chat about how we can help you, get in touch with Susie Mullin or send us an enquiry.
For more on potential tax consequences of Autumn Budget 2025, and what they mean for you, visit our continually updated Budget hub.
