UK's new tax break for entrepreneurs is "dreadful" policy, IFS boss says

IFS Boss Slams UK's New Founders' Tax Break as 'Dreadful' for Entrepreneurs

Controversy Surrounds the UK's New Founders' Relief Tax Break

Introduction of the Founders' Relief

Nov 3 (Reuters) - A new tax break for company founders announced by British finance minister John Healey last week is a "dreadful" way to support entrepreneurship, the head of the Institute for Fiscal Studies think tank said on Tuesday.

From April, Britain will implement a "founders' relief" tax break, which offers a reduced 10% capital gains tax rate on up to £10 million ($13.4 million) of lifetime gains for qualifying founders of high-growth companies.

Intended Purpose and Criticisms

Goals of the Policy

The measure, intended to help entrepreneurs scale up and keep innovative firms based in Britain, may have the opposite effect, IFS Director Helen Miller told parliament's Treasury Committee of lawmakers.

Concerns from the IFS

She said the tax break would only reward established entrepreneurs — with an average windfall of £500,000 predicted according to tax office estimates — while doing nothing to help start-ups grow, nor boosting productivity.

Potential Unintended Consequences

"It basically incentivises you to, after a period of strong growth, sell your company quickly to get the relief — rather than perhaps to have that period of strong growth, allow it to mature and then a later date to sell it," Miller said.

"I can't imagine that anybody in the Treasury could have looked at the evidence around entrepreneurship and thought this was a good policy."

Broader Context and Political Response

British politicians have long complained about the country's failure to hold on to its most successful companies, such as artificial intelligence firm DeepMind, bought by Google in 2014.

In his budget speech, finance minister John Healey said he wanted to reward entrepreneurs who take risks and create wealth for Britain, and allow them to reinvest their proceeds.

Financial Impact and Official Response

The finance ministry predicted the founders' relief would cost taxpayers £1.3 billion in total from the 2027/28 financial year to 2031/32.

It was not immediately available for comment.

($1 = 0.7460 pounds)

(Reporting by Andy Bruce; editing by Suban Abdulla)