Overview
Amongst UK nationals who leave the UK with major shareholdings in a UK company, the researchers find a net outflow of at least £5.1bn in shareholding value, leading to at least £500 million in foregone CGT revenue. Leavers disproportionately go to countries that are zero-tax for CGT purposes (more than three quarters by shareholding value), suggesting that their migration may be tax-motivated. Gains amongst leavers are also extraordinarily concentrated: over the twelve-month period that was studied, around three quarters (74%) of the total shareholding value was attributable to just 10 individuals. These facts strongly suggest that the UK’s current policy of exempting gains from taxation when people leave is in need of review.
The final section of the brief outlines recommendation that the UK should follow the approach of Australia and Canada by levying a ‘deemed disposal on departure’ (DDD) for people who leave the UK, accompanied by ‘rebasing on arrival’ (ROA) for people arriving in the UK who have made gains whilst living abroad. The researchers argue that in combination, this policy (‘ROA-DDD’) would be a much fairer way to tax gains because it ensures that people would always pay UK tax on gains that they make whilst living here, but not on any gains they made whilst living abroad. Two separate (forthcoming) papers provide further details on the technical design of this policy, and how much revenue it would raise in total.
Key findings
1. Substantial revenue is lost to people leaving
Between April 2023 and April 2024, 2,400 UK nationals with major shareholdings in UK businesses left the UK. The total value of their shareholdings, across nearly 2,800 companies, was worth at least £6.8bn, based on the book value of the underlying companies. Over the same period, 1,300 individuals with shareholdings in already existing UK businesses came to the UK. The net outflow was at least £5.1bn in shareholding value, on which gains went untaxed. If we assume that half of the total shareholding value represents taxable gains (Advani, Hughson, Lonsdale and Summer, 2024), this implies that at least £2.5bn in gains from UK natives leave the UK untaxed. At current CGT rates, this has a revenue cost of at least £500m.
These numbers are likely to substantially underestimate the total value of capital gains leaving the UK untaxed, since:
• we do not capture gains on shareholdings below 25%;
• we do not capture gains on non-UK shareholdings;
• the book value used for the company – taken from the value of assets held on company balance sheets – underestimates the market value of the company, which includes intangibles such as goodwill, that make up an important part of the market value of most large companies;
• we do not capture gains on non-business assets;
• these figures are only based on departures by UK nationals.
Of the many sources of underestimation in these figures, a major one is the value of capital gains going to foreigners leaving the UK. Baseline migration for this group is much larger than for UK nationals, and foreigners make up a large share of top wealth and top income (Advani, Koenig, Pessina and Summers, 2024). In forthcoming work, Advani, Lonsdale & Summers (2024) use de-identified HMRC tax data, to estimate the gains accruing to foreigners whilst resident in the UK, and use this to model the revenue effects from a comprehensive reform of CGT.
2. Leavers are going to zero CGT jurisdictions
Of the 2,400 UK nationals with major shareholdings in a UK company who left the UK between April 2023 and April 2024, Spain was the top destination country with 980 individuals, closely followed by the UAE and US. Of emigrants who went to one of the top 10 most popular countries (Fig 1a), three out of five (59%) went to a destination country that either does not have CGT or where disposals by new arrivals are typically exempt.
Looking instead by value of shareholding, the top 10 countries are quite different, with Spain not making it anywhere into the top 10. Locations are much more concentrated by this metric, with 93% of gains going to one of the top 10 destinations, compared with only 60% of people. Locations are noticeably more tax-optimised, with three-quarters of value going to countries where there would be no CGT (either for anyone or for new arrivals specifically).
The implication is that most people leaving the UK with accrued UK business gains, and a substantial majority of the value of those accrued gains, are not taxed either in the UK or elsewhere. The right to tax these gains is one that is currently unilaterally being given up by UK. The overrepresentation of zero-CGT jurisdictions amongst top destinations for UK business owners also provides suggestive evidence that some moves may be directly tax-motivated.
3. Most of the revenue from taxing gains on departure would come from a tiny number of people
Capital gains are highly concentrated, with more than half of realised capital gains going to just 5,000 taxpayers in a year (Advani, Lonsdale and Summers, 2024a). Accrued gains among those leaving the UK are even more concentrated. Using shareholding value as the best available proxy for gains, the top 10 individuals account for three-quarters (73%) of the total value. These individuals make up less than 0.5% of the UK nationals who leave with substantial shareholdings. By contrast, the bottom 75% – even among a group who own at least 25% of a UK business – collectively account for only 1% of the total value moving abroad. This implies that if the UK moved to taxing unrealised gains on departure, it could set a very high filing threshold – thereby ensuring that the vast majority of emigrants would not need to file or pay tax – without losing much revenue.
Further reading