Alternatives to a UK ‘Exit tax’
There has been discussion about a possible UK exit tax targeting wealthy individuals who leave the country, with reports mentioning something like a 20 percent tax on unrealized gains rather than a direct confiscation of assets. This is not current policy, just a concept being discussed, and compared to similar systems that exist in the United States, Spain, and France in limited forms.
A potentially more effective approach than imposing an exit tax would be to address the reasons wealthy people consider leaving. International evidence suggests that mobile high-net-worth individuals value stability, competitive taxation, simplicity, and quality of life more than one-off taxes.
The key elements of a retention strategy would include predictable tax policy. Sudden or retroactive tax changes create uncertainty that drives people away. Publishing multi-year tax roadmaps and sticking to them can help maintain confidence.
The UK is shifting to a residence-based system with temporary relief for foreign income and gains. Keeping this system simple, stable, and attractive can draw and retain international talent, similar to the policies of Italy and Spain. The flat tax that incoming foreigners pay there has drawn hundreds of foreigners there and raised millions in revenue.
There needs to be support for entrepreneurs and investors, with competitive capital gains tax treatment for business sales, clear rules for stock options and carried interest, and efficient tax administration to encourage founders and investors to stay.
Clear inheritance tax rules are needed. The best policy would involve the abolition of Inheritance Tax altogether, as many countries, including Australia, Canada, Sweden and Estonia have done.
Non-tax factors include safety, quality schools, efficient planning and housing systems, good infrastructure, and smooth visa and immigration processes for family and key staff. All these matter significantly for relocation decisions.
Floating punitive ideas, even if never implemented, can cause people to plan to leave earlier. Countries that legislate clearly and then avoid constant debate tend to retain confidence better. The current pre-Budget ‘expectations management’ has floated outrageously punitive ideas to make the actual Budget seem less harsh when it is published. This has the perverse effect of driving people away earlier.
The conclusion must be that improving predictability, competitiveness, and quality of life are likely to be more successful at retaining wealthy individuals than imposing an exit tax. Clear and stable rules combined with an attractive environment tend to work better than punitive or unpredictable policies.
Madsen Pirie