Extremely well-off Britons leaving the UK for tax havens face having to pay a charge as they depart under plans being drawn up ahead of this month’s crunch Budget.
The chancellor Rachel Reeves is reported to be considering slapping a 20 per cent “settling-up charge” on business assets left in the UK as she tries to fill a multi-billion pound hole in the nation’s finances.
But shadow justice secretary Robert Jenrick hit out at what he said was a “crazy” idea that would “just see wealth and wealth creators sprint for the door… We need more entrepreneurs, not fewer! Reeves must rule out this latest desperate move”.
Economists have repeatedly warned Ms Reeves that a combination of Labour U-turns, higher borrowing and sluggish economic growth means she must raise taxes or tear up her flagship borrowing rules in the Budget.
And Ms Reeves herself has said that higher taxes on the wealthy will be “part of the story” of her highly-anticipated Budget later this month.
It is thought the move would raise about £2bn and bring Britain in line with most other G7 countries, which – apart from Italy – all already have their own “exit taxes”.
At the moment those who are emigrating can sell their British assets without having to pay capital gains tax (CGT), which is normally levied at 20 per cent.
But under the new proposals that would change and they would have to pay an ‘exit charge’ as they depart the UK, although there would be an option to delay for several years, according to the Times.
It comes as economists warn Ms Reeves is set to raise taxes faster than any chancellor in more than half a century. Capital Economics said that she could increase levies by as much as £38 billion in this month’s crunch Budget, on top of the £41.5 billion she raised last year. This would mean she had raised taxes more in just 17 months than any of her predecessors since 1976 did across an entire parliament.
The focus on the wealthy comes after claims that as many as 16,500 millionaires would leave the UK this year in response to tax changes and a lack of confidence in the faltering economy.
The Henley Private Wealth Migration Report forecast that the UK would lose twice as many as China – and ten times as many as Russia.
James Smith, research director at the Resolution Foundation think tank, said the Treasury had “precedent” to follow in creating a settling-up tax, but he warned that the move would have to be “immediate”.
“The idea would be that if someone decides to leave the country and relocate to a low-tax jurisdiction they would have to pay tax on any asset ‘gains’, like shareholdings, that remained in the UK.
“This would be different from the situation at the moment where if someone relocates to somewhere like Dubai, for example, they can sell off their UK assets after they have left the country and not be liable for any UK capital gains tax.
“The risk is that if you announce it and don’t bring it in immediately then it could lead to capital flight.”
Professor Andy Summers of the Centre for Analysis of Taxation, which proposed the policy, said that it had largely been made possible by Brexit.
“In the past … the ability to levy a settling-up charge was restricted by EU rules on freedom of movement,” he said. “But those rules no longer apply, so we could do what Australia and Canada already do along with most other European countries now those restrictions have been relaxed.”
The Treasury declined to comment.
