A new report from Centax (Centre for the Analysis of Taxation) argues that the UK should have an ‘exit tax’ like Australia and Canada.
Three quarters of leavers (by shareholding value) go to countries where they can sell their business without paying any tax on the gains they made whilst living in the UK, meaning that by leaving the UK they can avoid paying CGT altogether. This incentivises successful businesspeople to emigrate to save tax.
Almost all of the UK’s international peers already levy an ‘exit tax’ on the gains of people who cease to be tax resident. This includes Australia, Canada, the US, France, Germany, and Japan, amongst others. Within the G7, Italy is the only other country which does not have any CGT on emigrants.
If the UK levied an exit tax, it could raise significant revenue without affecting most emigrants. The top 10 wealthiest leavers each year account for three-quarters (73%) of potential revenue, so the government could afford to exempt anyone with gains below £1 million.
The UK has historically not had an exit tax for CGT because it would have been rendered ineffective by EU free movement rules (and this still hampers the exit taxes imposed by France and Germany). Now that the UK has left the EU, there is no obstacle to implementing an effective exit tax if the Government wishes.
These findings come from new research which combines information on company ownership based on the ‘Persons of Significant Control’ (PSC) register from Companies House with information on company values from Bureau van Dijk’s Orbis database. The study, by researchers from the Centre for the Analysis of Taxation (CenTax) analysed all changes of residence by owners of UK companies between April 2023 and April 2024.
The researchers argue that introduction of ‘Rebasing on Arrival, Deemed Disposal on Departure’ (ROA-DDD) would be:
- more principled: ROA-DDD would ensure that the UK taxes all gains that an individual makes whilst living here, but exempts any gains they made before they arrived;
- fairer: ROA-DDD would prevent business owners who have built successful businesses in the UK from ‘skipping out on the bill’ by emigrating without paying tax on their gains
- more efficient: ROA-DDD would remove the benefit of holding assets with accrued gains until after departure, so that individuals have an increased incentive to allocate capital wherever they think the return will be highest.
Andy Summers, Director of CenTax and Associate Professor at ÐÓ°ÉÂÛ̳, 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”.
Arun Advani, Director of CenTax and Associate Professor at University of Warwick, said: “Tax flight happens less than most people think, but does happen. 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.”
Cesar Poux, Research Economist at CenTax, said:
“It’s striking that so many UK business owners leave for countries where they can realise gains tax free. And these gains are extremely concentrated: in the year we studied, almost three-quarters came from just 10 people, with shareholdings worth over £4 billion”
Read Centax's policy briefing:
The is a new centre dedicated to improving public understanding of tax policy and helping to design better a better tax system, by generating evidence that is rigorous and relevant to policymakers and the public. CenTax is led by Dr Arun Advani (University of Warwick) and Dr Andy Summers (ÐÓ°ÉÂÛ̳).