Reeves says wealthy UK citizens will not be subject to a ‘tax on exit’

Rachel Reeves ruled out an exit tax for wealthy people who leave the UK in order to avoid higher taxes, in this month’s Budget. Meanwhile, business is bracing itself for a hike in the capital gains tax.

In recent days, the chancellor was urged to introduce a new tax on those who sell their assets overseas to avoid UK capital gains taxes, in order to raise money from the wealthy to plug an estimated fiscal hole in the public finances of £22 billion .

Insiders in the UK government who were briefed about the thinking of the chancellor said Reeves wouldn’t follow suit. One insider said that there would be no exit tax.

Reeves’ decision comes at a time when he is contemplating raising billions of dollars by increasing Capital Gains Tax. The majority of this tax is paid by wealthy individuals in the country.

Reeves wants to raise funds from non-doms, private equity leaders and other sources but she has had to reduce her plans. Treasury analysis warns that major changes may push people overseas.

A senior executive from a FTSE 100 company said that the Labour government is “super City-friendly”, but CGT is the only area in which the government “doesn’t listen” to the business. The executive at one FTSE 100 group said that the Labour government was “super City-friendly” but the CGT rate was the only area where the government did not listen to business.

The issue is a sensitive one for the government of Sir Keir. The prime minister will be hosting 250 global investors for a summit in London on Monday to encourage them to invest in Britain.

Reeves, since becoming chancellor of the UK in July, has refused to rule it out that the CGT will increase. Starmer stated in August that “those with the largest shoulders should carry the heavier burden”.

The Treasury has refused to comment before the Budget on tax speculation.

The Centre for Analysis of Taxation released a report this week that showed a number of UK counterparts, including Australia, Canada and the US as well as France, Germany and Japan, levy an exit tax.

CenTax suggested that the UK follow suit. The research showed that UK citizens’ business shares were valued at more than £5bn. This means they are losing capital gains tax revenue of about £500mn a year.

This week, The Institute for Fiscal Studies proposed that a possible option for people who are emigrating to the UK would be taxing them on their accrued gain. That is the increase in the value of an investment or asset that has not been sold.

Treasury Ministers have warned that raising CGT rates to high levels will result in a loss of revenue for the exchequer.

HMRC, UK’s tax authority, calculated previously that an increase of 10 percentage points in capital gains tax rates paid by higher and additional rate taxpayers on various assets would result in a loss to the exchequer worth about £2bn per year because people would change behaviour and hold onto assets.

The IFS has cautioned that these estimates might not be a reliable guide for the long-term effects of CGT reforms, and there could be greater potential for raising money.

The UK CGT is between 10 and 24% on gains from shares, business assets and properties which are not your primary residence. Carry-forward interest, which is the portion of profits made by private equity executives on successful deals, has a 28 percent rate.

Treasury officials told Jeremy Hunt this year, the former Conservative chancellor that reducing CGT rates paid by those who pay higher or additional rates of tax on the sale of property to 24 percent would maximize revenue for the exchequer.

Edward Troup said the property market is very different from the one for fine art or shares. He added that if Rachel Reeves was sensible, she would choose a rate in the mid-20% range.

HMRC estimates that a 1 percentage point increase in the higher CGT rates in April 2025 will raise an additional £110mn of tax in 2027-2028. A five-point increase in the CGT rate would lead to a £140mn loss in 2027-2028. A 10 point increase in CGT rate would cause a £2bn loss in 2027-2028.

Business owners are worried by the possible abolition of or reduction in business relief. Tax breaks allow business assets to be passed on to future generations, such as shares in Aim or private companies. The inheritance tax is reduced to a maximum of 40% above the £325,000 threshold.