As the UK government gears up for its first budget, with which it has to try to balance the public coffers, economists and think tanks are laying out the case for an "exit tax" on wealthy investors planning to re-domicile their businesses.

An Adam Smith Institute analysis of UBS forecasts has warned that impending change policy on capital gains tax (CGT), and other measures being considered by chancellor Rachel Reeves, are causing more wealthy people to consider moving to other jurisdictions.

UK CGT is currently set at 20% on most assets. The Guardian newspaper reported last week that Reeves is considering raising CGT as high as 39% in the budget.

The share of the UK population who are millionaires is expected to dip by a fifth over the course of this parliament, from 4.55% now to 3.6% over the next five years, according to the Adam Smith Institute.

Previous reports have also suggested the number of millionaires in the UK is set to fall by 17% over the next four years. The UK had more than three million adults with $1m (￡779,145) or more last year according to the 2024 Global Wealth Report from UBS (UBS). However, the Swiss investment bank expects the number of millionaires in the UK to fall to roughly 2.5 million by 2028.

READ MORE: UK business owners fast track exit plans amid fears of capital gains tax raid

As it stands, rich entrepreneurs and investors based in the UK can move overseas for tax purposes before cashing in capital gains tax. As many as three-quarters of those that leave re-domicile in tax havens, known for letting residents pay little or no tax at all, according to a report by the Centre for the Analysis of Taxation.

Some critics are calling for an "exit tax" in order to net more from — or even discourage — wealthy individuals leaving the UK.

Although it would be a new policy for the UK it won't be such a strange concept to the mega-wealthy. Versions of it have already been implemented in places like the US, Canada and Australia. Within the G7, Italy is the only other country which does not have any CGT on emigrants.

Exit tax could raise a lot from a few

Among UK nationals, the business shareholdings of leavers are worth more than ￡5bn, according to a report by LSE academics. This means the UK could raise an estimated ￡500m per year in foregone CGT with new laws.

Three-quarters of leavers (by shareholding value) go to countries where they can sell their business without paying any tax on the gains they made whilst living in the UK, meaning that by leaving the UK they can avoid paying CGT altogether. This incentivises successful businesspeople to emigrate to save tax.

Read more: How to reduce your capital gains tax bill ahead of the budget

Although those numbers are high, the researchers say that if the UK brings in an exit tax, it could raise significant revenue without affecting most emigrants.

“Charging CGT on people who leave the UK is not about punishing them for leaving. It’s simply saying: ‘you need to pay your bill on the way out’," said Dr Andy Summers, associate professor at LSE and director of CenTax.

"Most of the UK’s international peers already do this, and there is no reason why the UK couldn’t as well.”

The top 10 wealthiest leavers each year account for three-quarters (73%) of potential revenue from a tax like this, so the government could afford to exempt anyone with gains below ￡1m, the report said.

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