A top rate of capital gains tax (CGT) of 40 per cent would make the UK an outlier, even in Europe, City A.M. anaysis shows.
The Office for Tax Simplification recommended last week that chancellor Rishi Sunak double the rate of tax on capital gains.
The tax which is not charged when someone sells their primary residence, is currently levied at 20 per cent for those in higher income tax brackets.
Miles Dean, tax expert and head of international tax at Andersen, last week warned raising CGT in an interview with City A.M.
He said raising the top rate of CGT would “result in wealthy foreigners shunning the UK, wealthy Brits leaving and the Conservatives signing their own death warrant.”
If Sunak did double the top rate of CGT, it would reach 40 per cent.
And begs the question: where might high-net-worth individuals go to and where would they avoid?
The United States
The top rate of capital gains tax in the US is 20 per cent for assets held for over a year.
Still, individual states and local authorities can levy additional CGT.
Millionaires in New York, for example, pay an additional 8.8 per cent.
Germany and France
Germany and France levy CGT at 25% and 30% respectively. Germany has pretty low thresholds, with tax due on nearly all capital income above the €800 (£700) mark.
The Nordic Countries (Norway, Sweden, Finland, Denmark, Iceland)
These countries generally levy high rates of capital gains tax, with top rates between 30 and 42 per cent.
Iceland is the exception, with a top rate of 22 per cent.
A maximum CGT of 40 per cent would put the UK on the upper end of this group – only Denmark’s top rate is higher (42%).
Would wealthy people leave the UK if capital gains tax is raised?
If Sunak raises CGT, wealthy individuals might move either themselves or their wealth out of the UK in search of more welcoming tax rates.
Many countries levy no capital gains tax at all, including Belgium, New Zealand, Singapore, and Switzerland.
Others, such as Greece and the Czech Republic, already have lower CGT rates than the UK.
However, the Journal of Economic Perspectives recently published a review of the relationship between taxes and migration.
Researchers concluded that issues with data and methodology make it hard to say whether asset-rich people are likely to move in response to higher tax rates on capital gains.
All we can say for sure, then, is that, if Sunak moved the UK’s top rate of CGT to 40 per cent, this would be one of the highest in the world.
If he increased it to 30 per cent, the UK would be aligned to similar OECD economies.