Rising numbers of rich foreigners say they’re leaving the UK in response to the abolition of the “non-dom” regime that allowed them to keep away from paying tax on abroad earnings.
The change — backed by each the Conservative and Labour events — has contributed to a relative decline within the UK’s attractiveness, in line with over a dozen interviews with rich foreigners and their advisers. Different deterrents cited embrace Brexit, fiscal and political instability, and considerations round safety.
“Brexit occurred and the Conservatives promised to make the UK like Singapore and as an alternative they turned this place into Belarus,” mentioned a billionaire businessman who has lived in London for 15 years and is now shifting his tax residency to Abu Dhabi. “Safety is now a serious subject and one other contributing issue to the tax causes for why persons are wanting to depart.”
In March chancellor Jeremy Hunt stole one of many opposition Labour social gathering’s flagship fiscal insurance policies when he introduced the abolition of the non-dom regime.
Labour shadow chancellor Rachel Reeves adopted with proposals to toughen the deliberate crackdown, notably reversing a Tory resolution to allow non-doms who will lose advantages from subsequent April to defend international belongings held in an offshore belief from inheritance tax completely.
Polls have put Sir Keir Starmer’s Labour social gathering on monitor for victory within the basic election on July 4.
“The UK’s inheritance tax of 40 per cent in your world belongings is an actual drawback,” mentioned a European non-dom businessman in his 50s, who’s shifting his household from London to Switzerland after greater than a decade within the UK. “It’s the general instability that has been the nail within the coffin for me. If there was a extra balanced, much less punitive inheritance tax I might need thought-about staying.”
Whereas Starmer has sought to place Labour because the “social gathering of wealth creation”, the non-dom adjustments mark considered one of a number of potential tax will increase underneath a Labour authorities.
Whereas Labour has dedicated to not increase earnings tax, nationwide insurance coverage, company tax or VAT, the social gathering insists it has “no plans” to boost capital good points tax or inheritance tax or levy any type of wealth tax, however refuses to rule them out. Reeves informed the Monetary Instances this week: “We’re not searching for a mandate to extend individuals’s taxes.”
A celebration official mentioned “no person has seen” a supposed Labour memo, reported by the Guardian, which outlined that the social gathering was mulling plans to extend the speed of CGT in step with earnings tax and cap enterprise and agricultural land inheritance tax reduction. Labour officers mentioned the report gave the impression to be based mostly on analysis by the Institute for Fiscal Research and Tax Coverage Associates.
Trevor Abrahmsohn, director of Glentree Properties, a London property agent, mentioned there had been a gradual decline in inquiries for £10mn properties, which he attributed to “greater rates of interest and anticipated adjustments to the non-dom regime”. He added: “As extra high-end property comes on to the market, I anticipate there to be fewer consumers and for costs to fall.”
Indian vaccine billionaire Adar Poonawalla final month informed the FT that the non-dom change had harmed the UK. “Some persons are prepared to pay that value like I’m, however most others aren’t,” mentioned Poonawalla, head of the Serum Institute of India. “They will simply transfer out.”
There have been 68,800 people claiming non-dom standing on their tax returns in 2022, in line with the latest estimates from HM Income & Customs, the UK tax company, however a lag within the information makes it not possible to gauge current strikes.
“There isn’t any laborious and quick information on non-dom departures however there’s an actual buzz in the meanwhile round individuals each contemplating leaving and really going,” mentioned Fiona Fernie, a associate at tax and accounting agency Blick Rothenberg. “There’s been a particular marker put down by each events that non-doms are targets and no matter advantages perceived to be given to them goes to be considerably decreased. It is a catalyst for departures.”
One French investor in his 40s mentioned that “any foreigner within the UK who has the choice to depart is doing so due to the top of the non-dom regime”. He’s shifting from London to Milan early subsequent 12 months, lured by a system that was introduced by Italy in 2017 that exempts international earnings from Italian tax in trade for the cost of €100,000 a 12 months. Returning to France was “out of the query”, he added, given the present political scenario.
A crackdown on the non-dom regime started eight years in the past underneath then Conservative chancellor George Osborne. He tightened the regime in order that from April 2017 international residents who had lived in Britain for greater than 15 of the previous 20 years have been deemed domiciled within the UK.
Since then different European jurisdictions — together with France, Italy and Portugal — have gone in the wrong way, launching comparable non-dom or impatriation regimes to draw rich households, growing competitors with conventional havens akin to Monaco and Switzerland.
Italy, Switzerland, Malta and the Center East are presently the preferred locations for these leaving the UK, in line with advisers.
Whereas non-doms don’t pay tax on their offshore earnings, they’re taxed on their UK earnings. Proponents of the regime argue that non-doms deliver expertise, jobs and funding to Britain.
The American Faculty in London is anxious about future enrolment because of the non-dom abolition, in line with two individuals aware of the scenario. The American Faculty declined to remark.
A French businessman in his 50s who’s resident in Switzerland mentioned he had began the method of shifting a part of his enterprise to the UK however backtracked after the federal government introduced it might abolish the non-dom regime.
“The Conservatives have despatched a really sturdy sign that they don’t need foreigners right here any extra and Labour received’t do something to alter that. I’m 100 per cent positive I’m not going to return again.”
He added: “Was the non-dom regime a good system? No it wasn’t. Was it environment friendly? Sure it was.”
Fears of a more durable tax regime are additionally inflicting some UK nationals to have a look at leaving the nation. Henley & Companions, which advises on residence and citizenship, mentioned it had obtained a three-fold improve in inquiries from UK nationals between 2022 and 2023 and a 25 per cent year-on-year improve within the first half of this 12 months.
“A number of the inquiries we’re getting in the meanwhile within the London workplace are based mostly on the truth that Labour will are available in and what may occur on the again of that,” says Dominic Volek, group head of personal purchasers at Henley & Companions.
