The UK’s exit tax is less risky than the zero fiscal vision
Britain is once again worried about an exodus of the rich. Amid panic about the departure of so-called non-domiciled taxpayers, UK Chancellor of the Exchequer Rachel Reeves is considering a 20% “settlement fee” on the assets of wealthy people leaving the country. While concerns about the impact of the move are overblown, concerns about the government’s lack of a clear fiscal vision ahead of its budget on November 26 are not overblown.
Taxing workers’ unrealized capital gains – treating their assets as if they were sold that day – is common in developed countries. France imposes a capital gains tax rate of 30%, but allows permanent deferral of fees for those moving to the European Union, or to jurisdictions with which it has a tax treaty. Canada excludes home and retirement funds from exit taxes, and typically requires payment only when the assets are actually sold. Meanwhile, the United States caps the exit capital gains rate at 20%, but has minimal loopholes and rarely allows deferrals.
The goal of all of these is the same: to prevent successful entrepreneurs from shifting their wealth to low-tax jurisdictions and cashing out. Revolut co-founder Nikolay Storonsky’s recent move to Dubai illustrates these concerns. A 2024 report by CenTax estimates that the departure of British citizens costs the Treasury around 500 million pounds a year in lost capital gains tax.
The proposed levy in the UK could raise around 2 billion pounds – 15% of overall capital gains tax receipts and just 0.2% of total tax receipts. Contrast this with the 30 to 40 billion pound fiscal gap that Reeves is trying to close. Additionally, CenTax estimates 73% of potential outbound tax revenues will come from just the 10 richest people each year – a big problem if these groups are reduced first. Norway’s recent experience, where rising wealth and exit taxes fueled the migration of the super-rich, provides a cautionary tale.
Even so, his fear was still excessive. The true decline of non-dom exits won’t be fully known until 2027, but it likely won’t just happen. Exit taxes could also be designed to limit losses for new entrants. Australia, for example, offers “rebasing on arrival,” excluding pre-transfer asset gains from taxation. If designed carefully, an exit tax could be part of a broader capital gains tax overhaul that supports entrepreneurship. As the Institute for Fiscal Studies notes, the current regime discourages risk-taking.
The deeper problem is that Reeves’ speech on Tuesday once again refused to say whether he would backtrack on his promise not to raise income taxes or value-added taxes, which account for half of the revenue base. This reflects its efforts to gain fiscal space, which will likely continue in the years to come, rather than balancing progressive taxation with maintaining Britain’s financial primacy. For wealthy entrepreneurs, nothing is more anxiety-provoking than having all the options available.
Source: Reuters
