A report from the Centre for the Analysis of Taxation (CenTax) has proposed implementing an ‘exit tax’ on successful business founders who realize gains while living in the UK and then emigrate. Currently, the UK does not impose capital gains tax (CGT) on individuals who leave the country for more than five years, a policy that some academics argue incentivizes wealthy entrepreneurs to relocate abroad to reduce their tax liabilities.
The report highlights that three-quarters of those who leave the UK move to countries where they can sell their businesses without incurring tax on gains earned while residing in the UK. It estimates that migration of UK nationals costs the country at least £500 million in lost CGT revenue annually at current rates.
Rachel Reeves, the UK Chancellor of the Exchequer, is reportedly considering various policies for her upcoming Budget, including a potential increase in CGT. CenTax’s proposal, dubbed “rebasing on arrival, deemed disposal on departure,” suggests that individuals arriving in the UK should be exempt from taxation on gains accrued before their arrival, while those departing should be taxed on gains accrued during their residency.
The proposal notes that taxing only the wealthiest emigrants could be a feasible option; the top ten wealthiest leavers account for 73 percent of potential CGT revenue, allowing the government to exempt individuals with gains below £1 million.
Arun Advani, director of CenTax and Associate Professor at the University of Warwick, commented, “If politicians are worried about emigration, they could follow Australia, Canada, and many other countries by taxing the gains of people who leave. It’s a policy choice to let them emigrate tax-free.”
Andy Summers, director of CenTax and Associate Professor at the London School of Economics (LSE), added that imposing CGT on emigrants is not about penalizing them but ensuring they settle their tax obligations before departure. He noted that many countries, including Canada, Australia, and the US, already have similar tax structures for emigrants.
The report underscores that prior to Brexit, the UK could not have implemented such a tax due to EU free movement rules, which are no longer applicable. Similar exit tax proposals have emerged from other think tanks, including the Institute for Fiscal Studies (IFS).
However, some economists express concerns that introducing such a tax could deter investment and entrepreneurship in the UK. Julian Jessop, an independent economist and fellow at the Institute of Economic Affairs, warned that while the idea has merit, it might compound existing measures that disincentivize investment and could send a negative message to potential entrepreneurs. He cautioned that a punitive exit tax could particularly impact high-tech industries, which tend to have more mobile entrepreneurs.
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