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Rachel Reeves has ruled out imposing an exit tax on wealthy people leaving the UK to dodge higher taxes in this month’s Budget, as business braces itself for a rise in the levy on capital gains.
The chancellor has been urged in recent days to introduce a tax on people who move overseas and then sell assets, avoiding UK capital gains tax, as she seeks to raise more money from the rich to plug a fiscal hole of at least £22bn in the public finances.
Countries including the US, Canada and Australia already impose similar levies, dampening incentives for the wealthy to emigrate for tax purposes, but UK government insiders briefed on the chancellor’s thinking said Reeves would not follow suit. “There will be no exit tax,” said one.
The decision comes as Reeves contemplates raising billions by increasing capital gains tax, most of which is paid by the country’s richest individuals.
Reeves also wants to raise money from non-doms and private equity chiefs but has been forced to scale back her plans; Treasury analysis warned that big changes could drive people abroad and cost the Exchequer money.
An executive at one FTSE 100 group said the Labour government was “super City-friendly” but that CGT was the only area where the government was “not listening” to business. Ministers seemed to have a “blind spot” and thought people would not leave the UK if the rate were increased, the executive said.
The issue is highly sensitive for Sir Keir Starmer’s government. On Monday the prime minister will host some 250 major global investors in London for a summit to try to persuade them to invest in the UK.
Reeves has refused to rule out an increase in CGT since becoming chancellor in July and Starmer said in August that those “with the broadest shoulders should bear the heavier burden”.
The Treasury refused to comment on tax speculation ahead of the Budget.
Research from the Centre for Analysis of Taxation this week showed that a range of UK peers including Australia, Canada, the US, France, Germany, and Japan levy some form of exit tax.
CenTax said the UK should follow suit. Its research found that among UK nationals, the business shareholdings of people leaving the country were worth more than £5bn, indicating at least £500mn per year in lost capital gains tax revenues.
The Institute for Fiscal Studies suggested this week that one option would be to tax people emigrating from the UK on their accrued gains, the increase in value of an asset or investment that is not sold.
Treasury ministers have been warned in the past that pushing CGT rates too high will end up losing revenue for the exchequer.
HMRC, the UK tax authority, has previously calculated that a 10 percentage point increase in the capital gains tax rate paid by higher or additional rate taxpayers across various assets would lead to a loss of revenue to the exchequer of about £2bn a year, because people would change their behaviour and hold on to assets.
However the IFS has warned that these estimates may not be a good guide to the long-term impact of CGT reforms and there may be greater potential to raise money.
In the UK CGT of between 10 and 24 per cent is charged on gains from business assets, shares and properties that are not the primary home. The highest 28 per cent rate is for carried interest — the cut of gains made by private equity chiefs on successful deals.
Jeremy Hunt, former Conservative chancellor, was advised by Treasury officials this year that reducing the CGT rate paid by higher and additional rate taxpers on property sales to 24 per cent would maximise revenues to the exchequer, according to Tory officials.
Edward Troup, former executive chair of HM Revenue & Customs, said that the market for shares or fine art was very different to that for property, but added: “If Rachel Reeves is sensible, she’d pick a single rate somewhere in the mid-20 per cent range.”
HMRC estimates that a one percentage point increase to the higher rates of CGT in April 2025 would raise an extra £110mn in tax in 2027-28. Meanwhile an increase of five percentage points on the higher CGT rates would result in a loss of £140mn in 2027-28, with a 10 percentage point increase leading to a loss of £2bn in 2027-28.
As well as the rate of CGT, business owners are also concerned about the potential abolition or reduction of business relief. The tax break allows business assets, including shares in private or Aim-listed companies, to be passed from one generation to the next with either a full or partial reduction in inheritance tax, which is usually charged at a rate of 40 per cent above the threshold of £325,000.