Pressure mounts on Labour to clarify their stance on departure levy
The UK government has yet to introduce a formal exit tax as of 2025, but discussions about a wealth tax are gaining traction, potentially leading to considerations for an exit tax to prevent capital flight.
Impact on UK Businesses and the Economy
The prospect of a wealth tax and potential exit tax has sparked concerns among businesses and economists. Over 16,500 UK millionaires are expected to leave this year, risking a loss of about £66 billion in liquid assets, due largely to fears of new wealth taxes. This outflow could reduce investment capital and economic activity.
The anticipated wealth tax, if coupled or followed by an exit tax, is expected to reduce revenues as high-net-worth individuals may exit the UK, avoiding taxation. This could have broader negative impacts on growth, investment, and employment, given the role of wealthy individuals and entrepreneurs in the economy.
Changes in inheritance tax (IHT) and trust taxation from April 2025 may increase tax liabilities on non-domiciled or long-term residents’ trusts, potentially complicating wealth planning and encouraging relocations.
The replacement of the non-dom regime with the Foreign Income and Gains (FIG) system means residents face global income tax from the outset, tightening tax obligations but without an explicit exit tax.
Opinions and Concerns
Dan Neidle, the chief of Tax Policy Associates, has warned that rumours of an exit tax could be damaging for the UK economy. Global wealth specialist March Acheson has suggested that it could be "very tempting" for the government to introduce an exit tax due to public opinions on fairness. Michael Ashcroft, a leading businessman, suggested that wealthy UK residents are leaving the country ahead of this year's Budget due to fears of an exit tax on unrealized capital gains.
London School of Economics professors at the new Centre for the Analysis of Taxation have called for the government to introduce an exit tax, citing Canada and Australia as economic models. The Institute for Fiscal Studies (IFS) and the Resolution Foundation have endorsed the introduction of a form of an exit tax in the past.
The Government's Stance
The government has so far refused to rule out individual taxes, leaving the possibility of an exit tax open. If the government is not going to introduce an exit tax, Neidle suggests it would be a good idea for them to publicly rule it out. The Chancellor, Rachel Reeves, is expected to raise more than £20bn in taxes later this year. However, no new fact about her or the expected £20bn in taxes later this year was mentioned in the current paragraph.
In summary, while the UK government has not implemented a formal exit tax, its broader tax reforms, especially around wealth and residence status, have increased incentives for wealthy individuals to leave, potentially affecting capital availability and economic growth. Proposals for a wealth tax exist and discussions around accompanying exit taxes continue, reflecting concerns over taxing wealthy emigrants and retaining economic resources.
