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What does the recent Mini-Budget mean for early-stage investors? Below, our investment team explores 8 key announcements from the Chancellor and what these may mean for the UK startup landscape in the coming months (in our separate piece, we look more specifically at the falling GBP concerning early-stage investments).
We hope this information is helpful to our readers and angels in particular. To find out more about our EIS and other investment opportunities in our exclusive investor network, visit our portfolio page here. To enquire regarding our latest projects and funding (for investors and founders, respectively), you can reach us via:
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#1 Top 45% rate to be scrapped?
Higher earners are likely to be affected if the Chancellor decides to follow through with the proposal to abolish the 45% income tax rate for those earning over £150,000. Many angel investors, therefore, may find themselves with extra income to invest in early-stage companies and other opportunities by 2023 or 2024. However, that the Chancellor reversed this proposal in the week following the Mini-Budget, so it is unclear if/when this change may occur.
#2 Small business definition to change
Currently, a “small business” in the UK is partly defined as a business with fewer than 250 employees. This threshold has now been changed to 500 employees. This means that more businesses will likely be exempt from a wide range of regulations on larger businesses, opening opportunities for investors in small businesses to expand their portfolios without going into more restrictive regulatory territory.
#3 Business tax cuts
In September 2021, then Prime Minister Boris Johnson and Chancellor Rishu Sunak stated that corporation tax would rise from 19% to 25% on business profits over £50,000 by 2023. The new Mini-Budget has now scrapped these plans – potentially resulting in the UK having the lowest rate of corporation tax in the G20. For investors, this means that current and potential startup investments could have more profit to reinvest and/or create jobs – helping them to expand and grow their value.
#4 Stamp duty to double
Many of our investor readers like to include property investments (e.g. Buy to Let) within their portfolios. The Mini-Budget offers some good news on this front by doubling the exemption on paying stamp duty (from the current £125,000 of a property’s value to £250,000). Of course, this could enable sellers to feel that they can raise their asking prices. Yet the downward pressure on property values from rising interest rates is likely to act as a counterweight for some time.
#5 Tax hikes scrapped
In April 2022, two tax rises were introduced to help pay for the UK’s rising costs of health and social care. These were a higher dividend tax (1.25% rise across all three bands) and a rise in National Insurance (taking employees’ contributions from 12% to 13.25%). The Mini-Budget has scrapped these rises. Many angel investors will, therefore, be able to keep a bit more of their income and dividends – potentially putting the tax savings to work in other investments.
#6 Infrastructure changes
The Chancellor’s Mini-Budget has brought forward measures to scrap EU-derived laws in the UK and to streamline regulations. These measures, the government claims, will help to make it “Quicker to plan and build new roads, speeding up the deployment of energy infrastructure like offshore wind farms”. A £60bn value has been assigned to the value of energy support over the next 6 months. Angel investors looking to expand their portfolios into spheres such as energy and UK infrastructure, therefore, could see a more favourable regulatory environment for potential startup investments in the coming years.
#7 Investment zones
The government has also announced the future creation of 40 “investment zones” across the UK. These will offer generous tax breaks to businesses (e.g. no stamp duty and slashed taxes on employment) in areas such as Tees Valley, West Midlands, Norfolk and the west of England. This could be good news for investors looking to diversify their portfolio outside of London and other large UK cities.
#8 Financial system reform
The Mini-Budget has announced the scrapping of caps on bankers’ bonuses (to help attract more foreign investment) and the current Solvency II insurance regulations will be replaced with a more “tailor-made” set of rules for the UK. These changes could potentially free up tens of billions of investment and flexibility within the financial services sector. Exciting fintech startups may also find themselves benefitting from cuts to red tape.
Invitation
The Mini-Budget is still being digested by investors, analysts and media outlets weeks after its publication in late September. There is, undeniably, much for angel investors to welcome in the current announcements. Naturally, time will tell which measures do come into force – and what eventual form they might take.
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