Photo by Stephen McCarthy/Web Summit via Sportsfile, licensed under the terms of the cc-by-2.0.https://www.flickr.com/photos/websummit/37533614864/
Nik Storonsky was born and brought up in Russia, where his father was an energy oligarch. He moved to the UK when he was 20, and founded Revolut in 2015. Revolut started off as an efficient app for foreign exchange, but is now a fully-fledged bank, fully licenced and operating in many countries. It has 8 million customers in the UK and 40 or 50 million worldwide according to which source you look at. It is the UK’s most successful fintech company, estimated to be worth more than £50bn.
I am delighted that Nik Storonsky chose to move to the UK rather than to the US or any other country. He has built a significant company, employs people here, pays tax here and so on.
He is expected to sell his 25% stake soon, netting about £14bn in the process. As someone domiciled in the UK he would have to pay more than £3bn in capital gains tax at that point. Perhaps unsurprisingly he has moved to the United Arab Emirates, which has no capital gains tax. I can’t say I have ever wanted to move to the UAE, but maybe I would for £3bn (I doubt I will ever get to answer this question, unless someone wants to buy my substack…)
Every other developed country except Italy has an exit tax to prevent this sort of tax avoidance. What generally happens is that the stake is valued at the point a person leaves the country, and they pay the exit tax when the asset is sold. Mr Storonsky might therefore owe £3bn or thereabouts, despite leaving, and Rachel Reeves would be a bit happier. When your country is an outlier, it is wise to question whether that position is sensible.
But the danger of us having an exit tax is that people like Nik Storonsky might not have come here in the first place. There are, after all, lots of other places he could have chosen. We will never know why he chose the UK, but it is at least plausible that the ability to leave without paying billions in tax is an effective way to recruit people who are going to build up businesses. There is evidence that entrepreneurs do think about taxes when they decide which country to base themselves in. An exit tax is no use if it just deters people from coming in the first place.
Equally, if we had an exit tax he might well simply have left years ago, as soon as he was confident that the business was going to succeed. Revolut was worth £50m in 2017: had he left then, his exit tax would only have been £3m. An exit tax that induces earlier exit is not a winner - we want people building businesses here. Norway has had a wave of exits after it announced plans to introduce an exit tax.