I left the UK for taxes: should you do the same?

Earlier this year, I left the UK and moved my life to Valencia, in the South of Spain. After Reeves’ Budget, I fear that many British entrepreneurs may do the same, propelled by tax increases to greener pastures abroad.

This looming exodus of top talent, lured by the favourable tax havens of Dubai, Spain, and Cyprus, could have dire implications for the UK's entrepreneurial landscape. My own decision to move was driven by taxes and undoubtedly, this will be the driving force behind many others’ decision to move.

As many startups operate a remote working model, startup founders and other team members can often move relatively quickly and easily. Therefore, the government should be careful to retain top talent through favourable tax regimes.

For me, the decision to up sticks was driven by the draw of a better tax environment, lower cost of living and better lifestyle. Because most things cost considerably less in Spain, every month, I’m left much better off, with more money to save and invest.

When it comes to taxes, as an entrepreneur, I’m subject to what is known as Beckham’s Law, a special tax regime designed to attract foreign talent into Spain. This became famous in 2005, when David Beckham signed for Real Madrid and was one of the first beneficiaries of the regime. However, a killer left foot isn’t a requirement to be eligible. Many UK business owners or entrepreneurs are able to apply and benefit from these lower taxes.

The difference in tax rates is staggering. Those subject to the regime are taxed at a 24% rate up to €600,000. In addition, all overseas income is tax exempt for up to 5 years.

Moreover, as Spain is so close and well connected to the UK, moving has had little impact on business operations for myself and co-founder Arj Kumar. I’m in London about once a month for meetings, and can come at the drop of a hat as needed because of regular cheap flights. As a startup, we run on a remote-first culture, with one founder in Spain and the other in London. Therefore, we were ideally positioned as a company for me to make the move abroad.

Changing policies, changing business environment

During the Budget, the Chancellor touted the UK's Capital Gains Tax (CGT) as the lowest in Europe. However, this claim is misleading as the low rate only applies to the lower band. For higher or additional rate taxpayers, a handful of European countries offer lower rates than the UK's post-Budget 24%. As a result, business leaders may be driven to more tax-efficient economies, many of which also have a lower cost of living. In real terms, by moving to an area where living expenses are less, they will feel like they have had a pay rise as their money will go further.

Business Asset Disposal Relief (BADR), previously known as Entrepreneurs’ relief, was in place to give entrepreneurs a tax break when selling all or part of their business. However, Adjustments to the BADR (previously known Entrepreneurs’ relief) have now aligned more closely with standard CGT rates so the incentive it is designed for is lost. This is because entrepreneurs and business leaders will be paying a higher rate of tax on their hard-earned profits when they come to sell.

Often, entrepreneurs and business owners have sacrificed their own financial stability, benefits and career progression to reap the benefits of their labour in the future. But, in many cases, these entrepreneurs don’t manage to make a profit from their businesses. Following recent changes, the margin for making profit is now even smaller. As such, many entrepreneurs will be put off, or look for better locations to start their ventures.

Those looking to start a business will also be hit with increased National Insurance Contributions. As a consequence, business leaders will now be paying even more tax, sometimes even before they have turned a profit, further discouraging would-be entrepreneurs or pushing them abroad.

Taxing Taxes to Sunnier Shores?

The misguided policy decisions around taxing businesses could drive business away from the UK and into more competitive markets. This long-term exodus would undoubtedly have detrimental consequences for the UK economy as some entrepreneurs considering starting a business will be put off. Or, like me, they will find ways to move themselves abroad, often for a cheaper cost of living and better tax structure.

Labour may claim to be pro-entrepreneurship but surely must recognise that any tax regime which is not competitive will inevitably push businesses and the people who start and grow them towards more favourable climates. When entrepreneurs can move to other markets so easily due to remote working, the Labour government must do more. Otherwise, we will likely see an influx of entrepreneurs into European hubs like Valencia.

‍