Prison planet: how free movement of capital is a thing of the past

Japan has become the latest country to use a wealth tax to stop the capital of the rich from leaving, says Merryn Somerset Webb.


Japan's new wealth tax is an exit tax

I had a chat with a member of the UK's 0.01% a few days ago. He was worried about all sorts of things, from the status of non-doms to the rise of racial intolerance and the mansion tax. He might, he said, have to leave. But where, I asked, would you go?

The days in which the rich could live wherever they liked and just hold their money offshore where it went unnoticed and untaxed are long gone. These days, wherever they are, one state or another is going to want a piece of them.

Look to Japan, which is introducing a new wealth tax structured as an 'exit tax'.* From 1 July2015, any permanent residents of Japan who have been in the country for more than five out of the last ten years or Japanese nationals with financial assets (this doesn't include cash or real estate) of more than 100m (about $850,000) must pay the normal capital gains rate on any unrealised gains on those assets' departure. The same rate must be paid if those assets are inherited by or given to anyone living outside Japan.

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For now, this clearly this isn't an unavoidable tax: you can rebalance your portfolio towards cash before leaving to avoid it; if you are planning to return to Japan, you can apply for a payment extension; and there are various visa shenanigans foreigners can indulge in to stop themselves being considered a permanent resident, too.

But the aim of the Japanese government is obvious: it is to prevent people moving to low-tax areas, such as Singapore and Hong Kong, and selling their assets depriving Tokyo of its own much-needed tax revenue.

It's all part of the growing trend by nations to try and contain capital, and to capture what tax revenue they can within their own borders from individuals and bodies that have previously assumed free movement of capital to be a fully established right (large tax-avoiding corporations, take note).

The standard advice from accountants on this one is simple: if you are pretty rich and you live in Japan,butyou don't want to live in Japan for ever, leave now. However, that still leaves the rich one tricky question: leave for where?

* This isn't a new idea for taxmen: the US charges an exit tax to anyone wanting to give up citizenship, and France and Germany both operate a type of exit tax.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.