One of Cambridge’s leading ‘dontrepreneurs’ has called for an overhaul of tax incentives to drive a fresh surge of angel investment.

Professor Andy Hopper, who heads the prolific startup factory that is Cambridge University Computer Laboratory in the UK, wants the ‘five per cent rule’ impacting entrepreneurs’ relief scrapped.

As Business Weekly has previously reported, the Laboratory has stimulated 188 spin-outs – many of them now world leaders in their field of technology.

Some of the best have been pump-primed by founders and angel investors but Professor Hopper says the current system is a disincentive.

He said: “You have to own five per cent of the shares to qualify for entrepreneurs’ relief, which reduces Capital Gains Tax to 10 per cent on exit (The top rate of CGT is 28 per cent).

“For the typical case, where there are several founders and an investment from external parties, there is every likelihood that the founders will be under five per cent at the point of exit.

“Furthermore this rule distorts the business because there is a strong disincentive to growth through external investment at what is likely to be a critical stage for the company. Having the five per cent rule is a mistake and should be abolished.”

Entrepreneurs’ relief reduces the amount of the Capital Gains Tax on a disposal of qualifying business assets as long as you have met the qualifying conditions throughout a one-year period – either up to the date of disposal or the date the business ceased.

Qualifying capital gains for each individual are subject to a lifetime limit which, for disposals on or after June 23, 2010, is £5 million.