Everyone would not move their money out of the UK, because:
- £3trillion is in UK property - that is going nowhere - a small proportion have wealth - those few who try to relocate will be replaced by many more economic migrants because this taxation is cheaper for those who work and expensive for those who don't
So no, everyone would not just move their money out of the UK.
If a rich person owns properties worth 100 million GBP, or even a regular person owns a 100k GBP house at the start of this tax scheme, the value will go down because tax is essentially writing off 4% a year. Economics already covers topics like this - see discount rate and net present value. Heck there is even a Black-Scholes formula for how to value things in these kind of scenarios. And people with liquid assets can move them out of the country.
You talk of economic migrants, but remember that they need to actually have the money in the first place to buy things. And since others would be reluctant to make investments (eg factories) or savings (which provide loans) it would reduce the overall amount of work available.
With my proposal, we allow people to keep vastly more income (and therefore spend more).
The intention is:
Low-middle class pay much less tax
Upper middle class pay about the same
HNWI pay more (which is universally accepted as more fair, but never instigated with effective policy)
The problem that is being struggled with is that HNWI don't have frequent taxable events, generally because they hold assets and make savings. However there is a perception they aren't providing value (which is mostly wrong).
Generally any scheme you come up with to get at them will also affect everyone else, and to a far greater degree since they have less money and diversity to start with. And the HNWI have far greater incentive to move their money and themselves, as well as pay people to work out how to retain their money. You can move to almost any country in the world by plonking down a lump sum as an "investment" or as savings. (eg see how Dotcom ended up living in New Zealand.)
The usual solution to this is to try tweaking the tax code, seeing what the effects are and repeating. However scumbag politicians and the people who vote for them distort that process, so it doesn't have the intended effect.
An actually representative democracy would be a good first step rather than tax rate changes. Watch this talk about the US - the UK pretty much follows behind a few years later https://www.youtube.com/watch?v=Ik1AK56FtVc
Honestly this will simply encourage people to find loop holes in the system to avoid property ownership. And it's really what the right in the US mean when they say class warfare, it's just another clever way to shift the tax burden on the wealthy more. If that is what is wanted just shift up the 0 tax income limit and raise the top tax, no need to fuck around trying to seem like the goal is anything different.
But wrong on the avoidance... how would you avoid property ownership?
Or, since you mentioned above that the tax is on net property ownership, get a loan in the UK to the amount you own there, and buy stuff abroad with it.
Land wouldn't be moved but what about the other taxable wealth items such as insurance, corporate stock and bank deposits.
However, looking at the history of tax rises and the competitive landscape, people don't move.
Broken down:
UK top rate tax was raised from 40% to 50% two years ago. They said people would leave. No-one did. Actually, more wealthy from BRIC nations came to the UK
The US is the only competitive English speaking country for people from the UK to move to. And I'm sorry to say that US taxation is horrendous and massively uncompetitive.
So while capital flight is a risk, it is improbable.
Income can already be circumvented by leaving money in corporations or paying out to subsidiary companies. There are so many ways people can declare lower income that the 10% becomes insignificant in the big picture.
Capital flight/wealth tax is a different ballgame, I think.
Under this system, both corporates will pay 3% on all UK based revenue, so that they pay the same proportion as everyone else.
More tax from the wealthy, and a reasonable proportion from those who are currently on the poverty line (which is many million people).
Also, would the wealth tax be placed on the stockpile of cash/assets of businesses? I.e. their properties, bank deposits, and so on.
But bear in mind Google's margin is 24%+
So basically businesses would charge a sales tax (3%) increasing prices for the consumer.
Then the consumer would also pay 3% income tax. The consumers would pay 4% wealth tax. The business pays 3% revenue tax, taken from the consumer. The business wouldn't pay 4% wealth tax. Essentially the business would pay 0% tax, and the consumer would be on the hook for it all.
So a person who earns $50,000 and saves $20,000 per year would pay the following: Year 1, $1,500 on $50,000 Year 2, $1,500 on $50,000 $20,000 from previous year saved - 4% tax $800 a year $2,400 in total taxes. Year 3, $1500 on $50,000 4% on $40,000 = $1,600 $3,100 total tax
By year 20, the consumer who would have accumulated $400,000 would end up paying a total of 170k in taxes on savings, resulting in almost a 42% tax rate on their wealth.
The US and UK are slowly becoming dinosaurs. The amount of taxes they need to keep functioning as handout societies will be the end of them.