UK Exit Tax: Could an Exit Charge Accelerate the Flight of UK Millionaires?
The number of millionaires living in Britain has reportedly fallen by 7% since 2024, according to the Adam Smith Institute think tank, adding to the debate over whether the UK is becoming a less attractive place for wealthy individuals and entrepreneurs.
At the same time, there have been growing calls for greater taxation of wealth. That raises an interesting question ahead of the budget: could a UK exit tax become part of the discussion?
An exit tax could, for example, seek to impose a tax charge on individuals leaving the UK by bringing unrealised gains within the scope of Capital Gains Tax (CGT) on departure.
To be clear, there is currently no general UK exit tax of this kind for individuals, and there has been no announcement that one will be introduced. For now, this remains speculation, but with the taxation of wealth continuing to attract political and media attention, it is interesting to look at how an exit charge might work and some of the questions it could raise.
According to the Adam Smith Institute’s Millionaire Tracker, Britain now has around 442,000 sterling millionaires, based on its inflation-adjusted measure. The Institute says that represents a fall of around 7% since 2024 and the lowest level since the Global Financial Crisis.
That does not necessarily mean wealthy individuals are simply packing their bags and leaving the UK.
The Institute points to several possible factors behind the figures, including falling real asset prices, Britain’s relatively low household savings rate and the emigration of high-net-worth individuals.
However, reports of wealthy individuals leaving the UK have certainly attracted plenty of attention.
A number of high-profile departures have also fed into wider debate about the UK’s tax system and its international competitiveness, particularly when it comes to entrepreneurs, investors and internationally mobile individuals.
There is unlikely to be one simple answer.
Tax will rarely be the only factor in deciding where someone chooses to live. Family, lifestyle, business opportunities, political stability and access to international markets can all play a part.
Tax can, of course, be one consideration, particularly for people who have the flexibility to choose between several countries.
The UK tax landscape has also changed significantly in recent years, including the replacement of the former non-domicile regime and significant changes to the taxation of foreign income and gains.
At the same time, a number of countries have introduced tax regimes intended to attract internationally mobile wealthy individuals.
All of this feeds into a much wider policy debate around how governments raise tax revenue while also seeking to remain attractive to entrepreneurs, investors and internationally mobile individuals.
Against this backdrop, there have been calls for greater taxation of wealth in the UK.
Supporters of a UK wealth tax argue that those with the greatest resources should contribute more towards public finances, particularly at a time when the Government is under pressure to raise revenue.
Critics have questioned how much such a tax might ultimately raise once issues such as behavioural changes, valuations and the possibility of individuals relocating are taken into account.
Whatever side of that debate you sit on, it raises another interesting question.
If there are concerns that some wealthy individuals could choose to leave the UK following further tax rises, could an exit charge become part of the policy discussions?
Again, there has been no announcement that such a general charge will be introduced.
A UK exit tax, sometimes described as an exit charge, could theoretically seek to tax gains that have built up while someone has been UK resident but have not been realised before they leave.
A simplified example illustrates the concept.
Suppose an entrepreneur established a company while living in the UK. Their shares originally cost £100,000 but have since increased substantially in value.
If they still own those shares when they become non-UK resident, there has not ordinarily been a disposal simply because they left the country.
HMRC’s current Capital Gains Manual confirms that no general exit charge applies to all individuals simply because UK residence ceases.
That does not, however, mean someone automatically leaves the UK tax system behind when they move overseas.
For example, UK land can remain within the scope of CGT for non-residents, while the UK’s temporary non-residence rules can bring certain gains realised during a period abroad back into charge if the individual subsequently resumes UK residence and the relevant conditions are met.
A new general exit charge would therefore represent a significant change from the present position.
There are numerous ways in which an exit tax could theoretically be structured, and without an actual Government proposal, it is impossible to say what any UK version might look like.
Any proposal would need considerable detail around issues including valuations, liquidity, double taxation, the interaction with tax treaties and the treatment of individuals who subsequently return to the UK.
It would also raise an important practical issue for business owners.
An entrepreneur could potentially have considerable wealth tied up in a private company without having the cash available to meet a tax charge based on the company’s paper value.
These are among the reasons why the precise design of any exit tax would matter just as much as the headline rate. The detail of any potential regime would therefore be crucial.
One argument that might be made for an exit charge is that it could discourage some wealthy individuals from leaving the UK, but taxation can influence behaviour before a charge takes effect.
If internationally mobile individuals believed that becoming UK resident could ultimately make it expensive to leave, some might decide not to establish UK residence in the first place.
Similarly, existing UK residents contemplating an international move could potentially accelerate their plans if they believed an exit tax was likely to be introduced.
That does not necessarily mean an exit charge would result in an exodus. Much would depend on its design, commencement provisions and how the UK’s overall tax regime compared with competing jurisdictions. Therefore, without knowing what any hypothetical regime would look like, it is impossible to predict the behavioural impact.
It does, however, illustrate some of the questions policymakers might need to consider if an exit tax were ever put forward.
For now, perhaps the most important point is that reports of a new general UK exit tax are just that, reports and speculation.
There is currently no general exit charge for individuals simply because they cease to be UK resident, and anyone considering an international move should be cautious about making significant decisions based solely on speculation about what might appear in the future budget.
However, leaving the UK already comes with a number of tax considerations
Becoming non-UK resident is not simply a question of moving abroad. UK tax residence is determined under the Statutory Residence Test (SRT), and the outcome will depend on an individual’s particular circumstances.
There can also be continuing UK tax implications after departure, including in relation to UK property, business interests, trusts, inheritance tax and the temporary non-residence rules.
For entrepreneurs and high-net-worth individuals in particular, an international move therefore requires careful planning.
With another Budget approaching and wealth taxation continuing to feature in political debate, this is certainly an area worth keeping an eye on.
The reported 7% fall in Britain’s millionaire population does not, on its own, tell us why the number has fallen, nor does it demonstrate that UK tax policy is responsible.
What it does do is add another dimension to the wider discussion about tax, wealth and the UK’s attractiveness to internationally mobile individuals.
Whether an exit charge ever becomes part of that discussion at Government level remains to be seen.
If it does emerge as a formal proposal, the detail will be important and so will the potential impact on individuals already living in the UK and those considering moving here in the future.
Is there currently a UK exit tax?
There is currently no general Capital Gains Tax exit charge applying to individuals simply because they cease to be UK resident. However, specific UK tax rules can continue to apply after departure, so individual circumstances need to be considered.
Will the UK introduce an exit tax?
There is currently no general UK exit tax announcement. Any discussion about a new exit charge should therefore be treated as speculation unless and until the Government publishes a formal proposal.
Do I pay Capital Gains Tax if I leave the UK?
Leaving the UK does not necessarily create an immediate CGT charge on all your assets.
However, UK tax can continue to apply to certain disposals, including UK land, and the temporary non-residence rules may apply where an individual returns to the UK within the relevant period.
What are the temporary non-residence rules?
Broadly, the temporary non-residence rules can bring certain income and gains realised while an individual is non-UK resident into charge when they return to the UK, provided the relevant conditions are met. The rules are detailed and depend on the individual’s circumstances.
Considering leaving the UK?
The tax consequences of becoming non-UK resident can be complex, particularly for business owners, shareholders and high-net-worth individuals with assets in multiple jurisdictions.
If you would like to discuss the UK tax implications of becoming non-resident, please contact ETC Tax, and we would be happy to help.
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