Merryn's Blog

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.

15-2-3-Haneda-634

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.

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

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.

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.

Advertisement
Advertisement - Article continues below

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.

Advertisement

Recommended

Visit/519858/how-long-can-the-good-times-roll
Economy

How long can the good times roll?

Despite all the doom and gloom that has dominated our headlines for most of 2019, Britain and most of the rest of the developing world is currently en…
19 Dec 2019
Visit/519223/how-can-we-raise-more-money-in-tax
Economy

What are the best ways of raising more money in tax?

Given that whoever wins next week's election will be going on a massive spending spree, we're going to need to raise at least some of that money throu…
5 Dec 2019
Visit/518715/what-are-the-biggest-mistakes-investors-make-when-it-comes-to-tax
Investment strategy

What are the biggest mistakes investors make when it comes to tax?

The tax implications of an investment are something we rarely consider until after the event. That could prove to be an expensive mistake, says Domini…
27 Nov 2019
Visit/516603/how-tax-has-shaped-the-course-of-human-history
Economy

How tax has shaped the course of human history

Taxation is as old as civilisation itself. But how much is too much? Dominic Frisby looks at how taxation, war and society have evolved together over …
16 Oct 2019

Most Popular

Visit/investments/commodities/silver-other-precious-metals/600812/buy-silver
Silver and other precious metals

You should all own some silver. Just don’t expect it to make you rich

Silver is cool, beautiful and immensely useful. But for investors it's the most frustrating of metals. Dominic Frisby explains why you should own some…
12 Feb 2020
Visit/economy/600802/money-minute-wednesday-12-february-grim-times-for-european-industry
Economy

Money Minute Wednesday 12 February: grim times for European industry

Today's Money Minute previews industrial production in the eurozone, plus the latest from America's central bank.
12 Feb 2020
Visit/investments/investment-strategy/600804/the-secret-to-avoiding-being-panicked-out-of-your-portfolio
Investment strategy

The secret to avoiding being panicked out of your portfolio

With the coronavirus continuing to occupy headlines, investors still aren’t sure how to react. But the one thing you mustn’t do is panic. Tim Price ex…
11 Feb 2020
Visit/investments/stockmarkets/european-stockmarkets/600725/is-2020-the-year-for-european-small-cap
Sponsored

Is 2020 the year for European small-cap stocks?

SPONSORED CONTENT - Ollie Beckett, manager of the TR European Growth Trust, on why he believes European small-cap stocks are performing well.
12 Feb 2019