Don’t Tax People for Leaving Britain. Give Them a Reason to Stay

It is rumoured that Team Burnham is keen for the UK to join many other developed nations by introducing an ‘exit tax’. It is essentially a levy on unrealised gains, triggered when a tax resident, or company, leaves the country. The logic has obvious political appeal: if the rich are going to flee high taxes, why not tax them on the way out? But political appeal is not the same as sound economics.

1The worst possible way to float it

Before we address the merits or otherwise of an exit tax, it is worth pointing out that Burnham’s team appear to have gone about this in almost the worst possible way. If you spread rumours that you’re going to introduce one, or if a future Chancellor states that one will come into force at some later date, anyone likely to be affected has an obvious incentive to leave immediately.

This is incredibly damaging because it risks accelerating an exodus of the very wealthy, leaving ordinary working people to pay even higher taxes to fill the hole left in HM Treasury’s coffers. It will also drive out the entrepreneurs. That matters, because they are the job creators — the people building the new products and services which improve our lives and drive growth. The end result would be a crippling tax burden on the workers and firms that remained, worse public services, and stagnant economic growth. Team Burnham have been reckless and incompetent, and they’re not even in power yet.

As for whether an exit tax is a good idea, the answer has to be no. Many other advanced economies do levy such a tax, so it wouldn’t make the UK an outlier — but there is still a strong case against Britain introducing one.

2A tax on money you haven’t banked

Let’s start with the basic design flaw. Most taxes are levied on income, consumption, or realised gains. An exit tax asks someone to pay cash today on a gain they have not yet banked — often on assets such as private company shares, family businesses or illiquid property that cannot easily be sold to fund the bill.

Norway’s government, having tightened its exit-tax regime in 2022 and again in 2024, now taxes departing residents on unrealised capital gains above a threshold, with an effective top rate of 37.8%, and has replaced the old open-ended deferral regime with a much harder 12-year payment framework. Entrepreneurs who hold paper wealth in scaling startups can be forced to find real money to pay tax on a gain that exists only on a valuation spreadsheet.

3The financial prison

The deeper problem is the lock-in effect — or, in the more colourful words of one Norwegian entrepreneur who relocated to Switzerland, a ‘financial prison’. A government logically wants an exit tax to stop wealthy taxpayers from leaving. But the moment such a tax exists, mobility itself becomes a one-way ratchet. People who might otherwise have moved abroad temporarily — for a job, an education, or to start a company — now think twice, because leaving is itself a taxable event. Capital that would have flowed to wherever it is used most productively instead sits still, trapped by the fear of crystallising a tax bill.

Reuters reported that 261 residents with assets above NOK 10 million left Norway in 2022, and 254 in 2023 — more than double the typical pre-rise rate, many of them for Switzerland. The response to that exodus was to tighten the exit-tax regime further and close the loopholes that allowed indefinite deferral.

Once you have a wealth tax, you need an exit tax to stop people leaving — and once you have that, the rate only ratchets upward.

As the Norwegian economist Ole Gjems-Onstad has put it: once you have a wealth tax, you need an exit tax to stop people leaving, and once you have that, the rate only ratchets upward, because raising it becomes the path of least resistance compared with confronting capital flight directly. That is a tax system designed around restraining taxpayers’ movement, not around raising revenue efficiently.

4A wall at the border — in both directions

Not only will an exit tax keep people trapped inside the country, it will also act as a massive barrier to entry. Why would any intelligent, hardworking, wealth-creating person — exactly the kind Britain needs to attract — come to the UK if they knew that any paper wealth built here could be taxed at the border before it had ever been turned into cash? The country would miss out on new firms, the jobs they create, and the taxes they pay.

This is no longer just a question of marginal tax rates. In frontier sectors, capital mobility and talent mobility are strategic assets. We recently saw the Trump administration place export controls on Anthropic’s most advanced frontier models on national-security grounds. In an increasingly dangerous world — where we can no longer rely on our allies, and where AI is becoming essential to warfare — Britain will need companies that can compete with those in the US and China. That requires talent and investment, neither of which we will attract much of if the government introduces an exit tax.

5The honest alternative

None of this means the government should ignore base erosion, or that wealthy individuals shouldn’t pay their fair share before they go. The honest alternative is to tax income, dividends and realised gains properly while people are resident. More importantly, it is to create an environment where people and firms want to stay.

That means controlling and cutting wasteful public spending so the tax burden can be eased; reforming the tax system so investment is incentivised rather than punished; cutting red tape; slowing the push to Net Zero so that energy costs fall for firms; and liberalising the planning system so ambitious young people can afford to own a home in our most productive cities.

An exit tax is the policy of a government that has given up on being worth staying for.

You don’t need a tollbooth at the border if people already want to remain. You only reach for one once you’ve made staying the irrational choice. Team Burnham’s instinct is to bolt the door; the better instinct is to give nobody a reason to reach for the handle. Britain’s problem is not that the wealthy might leave. It is that we have offered them too little reason to stay.