Britain’s healthy tech scene is said to be cautioned: Britain’s future wave of entrepreneurs are at the risk of leaving Britain if tax plans on capital gains, a levy the government is looking at raising, are implemented.

Britain’s thriving tech sector has been warned that the country’s top entrepreneurs may leave the country because of Britain’s decision to raise the capital gains tax, which is the type of tax applied when investments are sold. Many in the tech industry are alarmed by the move, fearing it may impart damage on the startup ecosystem in the UK.

What is Capital Gains Tax?
Capital gains tax, abbreviated to CGT, is a tax put on earnings an investor will receive from selling an asset or a type of investment in a particular company. You pay the amount according to the profit earned. Currently, the UK has been weighed competitively across other countries, especially for entrepreneurs dealing with the tech industry and investors. Media reports, however, claim that the UK Finance Minister Rachel Reeves intends to increase this rate drastically. Others add that it can reach 39% and put the UK at the same rank as other countries in Europe with the highest rates for CGT.

Concerns of Entrepreneurs
UK entrepreneurs and tech leaders are worried that taxation at such high levels will send business creators away from the country. The issue has even been called a “tech exodus” by some. Many fear that taxing entrepreneurs more will make it increasingly difficult for them to build and grow successful businesses in the UK. Should this be the case, they may seek destinations with lower taxes, such as America or European cities like Paris and Berlin.

An open letter calling on the Treasury minister to avoid raising the CGT was signed by over 500 entrepreneurs as a group called The Entrepreneurs Network highlighted that increasing the CGT might affect the UK startup ecosystem. Giles Andrews, co-founder of the digital bank Zopa and Rishi Khosla, CEO of financing platform OakNorth, are just some of the most successful people in the UK’s tech industry who have spoken out.

They show this in a letter by pointing out that if the UK increases its CGT, then it would indeed be among the second-highest rates in Europe. They believe that this would break weak incentives for people to start and grow businesses and thus affect the global reputation of the UK as a place for innovation and a place for startups.

What Might Happen?
Some of this country’s leading figures in tech, including Adam French, a partner at the seed investment firm, Antler, reckon that if the UK raises its CGT, the government would be sending a bad message to the tech world. French said that the UK tech industry faces tough competition from places such as Paris and Berlin. Having the tax rate increased would then drive talent and entrepreneurs out of the country. Such people should be somewhere else, where the business climate is friendlier.

This also creates fear about the state of a “brain drain” since some are referring to this tax increase as such. That is, talented people, especially those in tech-related fields, might leave the UK to work elsewhere where there are better opportunities. And if the tech entrepreneurs leave, they take their businesses and innovative ideas with them. This would go against the interest of the economy.

According to Harry Stebbings, one of the best-known venture capitalists, this proposed tax increase is one of the “biggest” problems for entrepreneurs. He said that many entrepreneurs already think of leaving the UK if the government takes over the proposed CGT plans.

The Government’s Plans
Finance Minister Rachel Reeves plans to announce her budget plans on 30th October. Her aim is to bridge a massive funding gap in the country’s public finances. According to reports, she is also mulling an amendment to a special tax relief referred to as Business Asset Disposal Relief (BADR), by which entrepreneurs would pay only 10% tax in profits whenever they sell their businesses. The relief has been a great lure for business owners to remain in the UK.

However, if this relief is reduced or withdrawn, then it would exert more pressure on entrepreneurs to look for opportunities elsewhere. Entrepreneurs say that the time is very inappropriate to alter these tax reliefs as the time available for other countries to make their tax policies more business friendly in order to attract talent and investments is already quite limited.

Not Everyone Agrees
While many tech leaders are concerned about the effects of these tax hikes, not everyone considers raising the capital gains tax a bad idea. A report, recently produced by the Institute for Public Policy Research, a think tank, suggested that some millionaire business owners would welcome a higher CGT. They argue that it would be just to raise CGT at parity with income tax as a way of helping the government to raise more revenues for public services.

The report of the IPPR showed that most entrepreneurs are concerned with other aspects-more so with a good source of funding and viable market opportunities. They considered that such factors, rather than capital gains tax, are what encourage people to take up businesses.

What’s Next?
Now that the announced date for the budget draws closer, there is still much debate about the capital gains tax. Tech entrepreneurs have all been left to wonder whether or not Rachel Reeves will listen to their voices, and therefore, act on a decision to unscramble the planned tax hike. For now, it is still too early to say what finally decides the fate, but the UK tech sector is bracing itself for what will probably be its most major shake-up.

Meantime, a lot of business leaders urge government to pay more attention on the possible outcomes of these changes. “There was always great fame for being a great place for startups. That may change if this tax plan goes forward.”.

Says a venture capitalist and many others, “We need policies that encourage innovation, not discourage it.” But will the government do what’s necessary to balance the books without damaging one of the country’s most promising industries?.