The UK should have an ‘exit tax’ on successful people in business who make gains in the country and then emigrate, a report says.
At the moment, the UK does not charge capital gains tax (CGT) on people who leave the country for more than five years.
Academics from the Centre for the Analysis of Taxation (CenTax) argue this incentivises successful business people to emigrate, in order to cut their tax bill.
It also says this makes the UK an “international outlier” and that three-quarters of leavers go to countries where they can sell their business without paying any tax on the gains they made while living in the UK.
With Rachel Reeves rumoured to be considering an increase to CGT at the Budget in October, there have been suggestions that some business owners could leave the UK.
CenTax’s report suggests levying a tax on these people, saying migration by UK nationals currently costs the UK at least £500m in foregone CGT, at current CGT rates.
It proposes a policy known as “rebasing on arrival, deemed disposal on departure”.
This would mean for people arriving in the UK, exempting from UK tax any gains accrued before arriving, and for those leaving, taxing all those which they accrue while tax resident in the UK.
It also said the UK could levy the tax without affecting most emigrants, as the top 10 wealthiest leavers each year account for 73 per cent of potential revenue, so the Government could afford to exempt anyone with gains below £1m.
Arun Advani, director of CenTax and Associate Professor at University of Warwick, said: “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), said: “Charging CGT on people who leave the UK is not about punishing them for leaving. It’s simply saying: ‘you need to pay your bill on the way out’. Most of the UK’s international peers already do this, and there is no reason why the UK couldn’t as well.”
The academics argue that countries including Canada, Australia and the US already levy taxes similar to the one being proposed on emigrants.
The report said that the UK has not done so previously because European Union (EU) free movement rules would have rendered it ineffective, but this obstacle no longer exists now that the UK has left the EU.
It follows similar suggestions of a so-called “exit tax” from other think-tanks, including the Institute for Fiscal Studies (IFS).
However, some economists said the change would send a “terrible signal” to those looking to start a business in the UK.
Julian Jessop, an independent economist, and an economics fellow at the Institute of Economic Affairs, said: “In isolation this proposal is not unreasonable. If people would normally pay taxes on capital gains made in the UK, it does seem unfair that they can avoid them simply by moving overseas.
“Nonetheless, the Budget is already likely to include many other measures that penalise investment, saving and entrepreneurship. Adding yet another would send a terrible signal to anyone looking to start a business here.
“There is a risk too that a punitive exit tax hits sectors where entrepreneurs are especially mobile – notably high-tech industries – and therefore deters them from setting up in the UK in the first place.”