July 18, 2024
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What’s driving the UK’s wealthy towards the exit?

What’s driving the UK’s wealthy towards the exit?

Advisers to the wealthy are warning that many rich people are considering leaving the UK, in expectation of harsher tax conditions after the general election and pessimism about the outlook for the country.

Several advisers told FT Money more clients had become concerned about their tax position since the Budget, when the Conservatives announced a move to scrap existing non-dom rules — a policy the party adopted from Labour.

Chancellor Jeremy Hunt pledged to end the 200-year-old tax regime that exempts foreigners living in Britain, who are domiciled overseas, from paying UK tax on foreign income and capital gains for up to 15 years. This would be replaced by a new four-year system.

One adviser said she knew of a client who packed their bag the day of Hunt’s announcement and left the country that night. “I do think that was fairly dramatic”, she said. However, it underlined the sense of anxiety felt by many, she added.

Non-dom inquiries surged again after the Labour party confirmed its plans to limit the tax breaks further — if elected — by removing the ability of non-doms to shield foreign assets held in a trust from inheritance tax.

The party, which is leading in the polls, has also pledged to change the tax treatment of private equity executives and apply VAT to private school fees.

Ceri Vokes, partner at law firm Withers, said many private equity executives were also affected by the non-dom proposals and VAT school fees policy.

Is this just a problem for non-doms and private equity managers?
More millionaires have been leaving the UK than arriving over the past decade, according to investment migration advisory firm Henley & Partners. The UK’s withdrawal from the EU was a factor, its research found, with the UK suffering a net loss of 16,500 millionaires between 2017 and 2023.

“It’s not necessarily just about the tax, but the atmosphere,” said Andrew Oury, partner at advisory firm Oury Clark. “It does feel like Brexit opened this wound about immigration that still hasn’t healed.”

Another adviser said that for many planning to emigrate, it was, “the general feeling that nothing in the UK works any more, whether it’s the NHS, trains, or even if the tap water is safe to drink”.

Others pointed to the fear of a Labour government. “People are leaving because of Labour,” said Miles Dean, head of international tax at Andersen, a tax adviser. “Tax is clearly the key weapon they have and they’re going to use it to level down.”

Where are rich people going?
Several countries crop up as popular destinations, including the UAE, which levies no personal taxes. The US is another popular choice. Oury said he was seeing a lot more interest from Brits looking to move there.

Law firm Withers has identified the most popular European choices for would-be UK émigrés as Italy, Greece, Portugal, Spain and Switzerland.

Greece and Italy both charge a maximum tax of €100,000 (£84,000) a year, which advisers said was attractive for anyone earning more than around €250,000 a year.

Vokes said Italy had been particularly successful at attracting wealthy people in the seven years since it introduced its regime. The country had “shamelessly copied” the UK’s non-dom rules and improved on them.

“Italy is absolutely gaining at the UK’s expense,” she added. “People like (the tax regime’s) simplicity. You can explain it, you can understand it.”

Will there really be an exodus of the rich?
Quantifying the trend for wealthy individuals to leave the UK is hard. Helen Miller, head of tax at the Institute for Fiscal Studies, said she had not seen any “reliable evidence” of an exodus.

“You can always find an adviser that has a client that’s leaving the country,” she said. “The question we’d like to know the answer to is how many more people are leaving than usual.”

“I’m not aware of a stampede for the door,” added Clare Munro, a tax adviser at Weatherbys Private Bank. She said some of her non-dom clients were reviewing their location, but these tended to be people with “shallow roots in the UK and homes in several countries”, so shifting residence was not difficult.

“But a lot of UK-based multimillionaires do not have that flexibility,” she added. “They might be older, they have homes and land here passed down generations and they have family. For them the tax regime would have to be a lot tougher to justify such a major upheaval.”

Not all millionaires agree that tax is the sole determinant of a decision about where to live.

“There’s a lot of bluster that comes from the wealth advisory sector who have a vested interest in fighting for the best interests of their clients,” said Graham Hobson, founder of Photobox, a photo printing company that acquired Moonpig, later selling for a reported £400mn.

“I am a rich person, and I will not leave — as many others won’t,” he said. “People have lives, love the culture, communities and everything great that the UK offers, even now.”

If the rich flee, what is the economic impact?
Vokes said that while non-doms and private equity executives were a “tiny” part of the population, they contribute an outsized amount both in tax and other areas such as business creation, employment and consumption.

“This is a group we should consider really valuable and should be trying to retain,” she added.

Miller said: “If (policymakers) knew that by increasing taxes you would lose a lot of money as people would leave, that wouldn’t be a particularly smart move,” she added.

However, Arun Advani, assistant professor at the University of Warwick, who has studied the tax response of non-doms to previous reforms, said he found the people who responded most to tax increases and left the country had the fewest economic connections to the UK.

“They don’t have much income in the UK and they don’t pay much tax in the UK, so it costs less if they leave,” he said.

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