Captured settlers already become workers for everyone, so that's not an issue.
Edit: As far as the Liberty goes, you just don't get anything from that one policy. It's already like that in the Korean scenario when playing as Korea, China or Japan. Even without the free settler and not being able to build settlers, the rest of the tree would work just fine. After all, this UA idea would still let them capture and keep cities others build, so they'd still get the happiness bonus from trade routes. The great person of your choice at the end would still be very useful.
Also consider how much of a benefit the reduction in rebellion/razing would be. Say you capture a city that's at 28 population when you attack. That city will be at 14 when captured. Every other civ would be waiting 14 turns to raze the city or14 turns before they can even get a courthouse in it if they annex. With this UA idea, you'd only be waiting 7 turns. Even if the city remained a puppet, that's an extra 7 turns of the citizens working the gold tiles and manning the merchant specialists slots. So your GPT would jump up a lot sooner after a capture than it would for anyone else.
