Tax raid threat would reduce incentives to move assets abroad, think tank says
Rachel Reeves should launch a tax raid on wealthy people fleeing Britain as part of sweeping changes to capital gains rates, a leading think tank has said.
The Institute for Fiscal Studies (IFS) has called on Ms Reeves to impose an exit tax on investors moving their money out of the country, which it said would reduce incentives for them to flee.
The IFS joins the influential Left-leaning Resolution Foundation think tank in calling for such a policy in recent weeks.
It comes amid growing concerns about the number of wealthy people leaving Britain because of changes to the non-dom regime and fear of looming tax rises.
Charlie Mullins, founder of Pimlico Plumbers, has said he is ready to have “no assets in the UK” ahead of looming Budget tax rises. West Ham United chairman David Sullivan said last week: “Three or four of my friends have already gone to Monaco or Dubai.”
Tax experts warned that enforcing an exit tax would be tricky. One said: “The real world problem that academics miss is that this sort of regime dissuades people from coming in the first place.”
The IFS conceded that an exit tax would involve “practical challenges” with “design issues” that would have to be “carefully considered”.
However, the think tank backed the policy as part of broader reforms to capital gains.
The IFS joined a growing chorus of academics, think tanks and economists calling for the Chancellor to tax investment gains at the same rates as income, amid mounting speculation of a Budget raid on Oct 30.
Capital gains are taxed at a lower rate than income Headline tax rate
1980-81 1990-91 2000-01 2010-11 2020-21
Gains from 1988-89 to 1998-99 were adjusted for inflation before being taxed. From 1999 until 2007-08 taper relief was introduced IFS
Rumours of a raid on capital gains have already sparked a rush to sell property and shares.
Telegraph analysis shows executives at Britain’s biggest companies have sold more than £1bn of shares since the election was called, ahead of an anticipated capital gains tax (CGT) raid by Rachel Reeves.
Bringing them in line with income tax could leave some investors facing rates of 45pc.
The IFS claimed wholesale reform of the system would be “more growth-friendly” for the country.
However, businesses have warned that the move would deter risk-taking and entrepreneurship, while others would simply hold on to their assets until taxes fell again.
The IFS also recommended introducing what tax experts have dubbed a “double death tax” by removing a relief known as “uplift on death” that means that no capital gains tax is levied on the investments’ of someone who has passed away when they are liable for inheritance tax.
“With a reformed tax base, tax rates should ultimately be aligned across all forms of gains and income,” the IFS said. “This would involve significant increases to CGT rates.”
CGT raises an increasing amount of revenue, with £15bn paid by roughly 369,000 people last year. The IFS noted that two-thirds of revenues come from just 12,000 people who have average gains of £4m.
The IFS did not offer an estimate of how much extra revenue Ms Reeves could raise from aligning capital gains tax rates with income, highlighting the uncertainty of such a dramatic move.
Economists fear the Chancellor will put economic growth in jeopardy if she targets investors, after vowing to spare “working people”.
Sources said the Treasury was alive to the potential for significant behavioural responses.
“That never puts off the academic economist, but definitely does put off the real world Treasury,” said one source.
A Treasury spokesman said: “We do not comment on speculation around tax changes outside of fiscal events.”
