Street scene in Old Bond Street, Mayfair, London, UK.
Pavel Libera | Image Library | Getty Images
London – Monaco, Italy, Switzerland, Dubai. These are just a few of the destinations trying to lure Britain’s super-rich ahead of proposed reforms to the country’s divided non-domestic tax system.
Nearly two-thirds (63%) of wealthy investors say they plan to leave the UK within two years or “soon” if the Labor government goes ahead with plans to scrap colonial-era tax benefits, while 67% say they will not According to one report, they first immigrated to England new research Oxford Economics assessed the impact of these plans.
The UK’s non-domestic regime is a 200-year-old tax rule that allows people who live in the UK but live elsewhere to avoid paying foreign income and capital gains tax for up to 15 years. As of 2023, it is expected 74,000 people The number of people with this status is up from 68,900 last year.
The Labor Party proposed last month plan Abolish this status and expand on its election promises declaration and strengthen earlier proposals from the previous Conservative government phase out Regime over time.
Meanwhile, Prime Minister Keir Starmer has pledged to improve fairness and shore up public finances, with further announcements expected early next week at Labour’s annual conference and autumn budget statement on 30 October.
Finance Minister Rachel Reeves said scrapping the scheme could create £2.6 billion ($3.45 billion) during the next administration. However, research by Oxford Economics earlier this month in partnership with the UK’s foreign investor lobby estimated that the changes would cost taxpayers £1bn by 2029/30.
CNBC reached out to the Treasury Department for comment but did not immediately receive a response.
“We are sounding the alarm, this is a dangerous moment,” Foreign Investors UK chief executive Macleod Miller told CNBC by phone. “If the government doesn’t listen, they will put generations of income at risk. risk.”
Other countries have sensed the fear and are actively promoting their jurisdiction.
Leslie McLeod Miller
CEO of UK Foreign Investors
Under the proposals, the concept of “domiciled” will be abolished and replaced by a residence-based system, while the number of years that money earned overseas will be tax-free in the UK will be reduced from 15 years to four years.
Individuals must also pay inheritance tax after 10 years of residence in the UK, and 10 years after leaving the UK. They will also not be able to escape estate taxes on trust assets.
However, private wealth practitioner MacLeod-Miller, who set up a lobby group in response to the proposals, said the changes would hinder wealth creation and called for a graduated tax system.
The Oxford Economics study surveyed 72 non-residents and 42 tax advisers representing a further 952 non-resident clients, with almost all (98%) saying they would immigrate earlier than previously planned if the reforms were implemented. U.K. The 72 non-residents surveyed were each said to have invested £118m into the UK economy.
The majority (83%) cited inheritance tax on their global assets as the main motivation for leaving, while 65% also cited changes to income tax and capital gains tax.
Where do rich people move?
Meanwhile, other countries are reforming their tax systems to incentivize wealthy investors.
Switzerland, Monaco, Italy, Greece, Malta, Dubai and the Caribbean island of the Bahamas are among the most attractive destinations for wealthy investors, according to industry experts and agents interviewed by CNBC.
Helena Moyas de Forton, managing director and head of EMEA and Asia-Pacific at Christie’s International Real Estate, told CNBC: “Wealthy investors now have a lot of options and a lot of residences. In contention.
Moyas de Forton, whose team advises clients on international relocations, said Labour’s plans were the latest in a series of political developments in recent years that have shaken Britain’s reputation as a safe haven.
Monaco Monte Carlo skyline surrounded by sea and mountains.
Alexander Spatari | Moment | Getty Images
“This is just another blow,” she said. “I’m not sure if they’re all going to leave, but they’re definitely questioning and taking the time to see what’s changed.”
Marcus Meijer, CEO of real estate investor Mark, told CNBC’s “Squawk Box Europe”: “It’s definitely a danger. The market is very fungible. It’s easy for people to move back. Home and easy to move.
Many people are worried. They’d rather leave now before it’s too late
James Myers
Director Oliver James
Alternatives available to the super-rich include indefinite inheritance tax exemptions in Monaco, Malta and Gibraltar, and exemptions from income tax, capital gains tax and inheritance tax in Dubai. In Italy and Greece, the flat tax system allows wealthy individuals to avoid paying taxes on their global assets for up to 15 years for an annual fee of €100,000.
Italy last month double Its economy minister said the move was aimed at avoiding “fiscal favors” for the rich. However, McLeod-Miller said that even with slightly higher rates, the system could still be attractive to the top 1%.
“Other countries are smelling fear and are actively promoting their jurisdictions to attract their investment and families,” McLeod-Miller said.
“Italy is one of those countries that goes after the rich and seems to think that if you treat them well, they will contribute,” he added.
Prime UK real estate faces blow
This has also affected the UK’s main property market. James Myers, director of London-based luxury estate agency Oliver James, has seen an increase in sales activity ahead of Labor’s election in July. But now, about 30% to 40% of customers are lowering their asking prices to sell faster.
“A lot of people are worried. They’d rather leave now before it’s too late,” Myers told CNBC by phone. Many of Myers’ millionaire and billionaire clients have begun to put down roots in Monaco and Dubai, and Italy has “become a hot topic” recently, he said.
Overall market data from property agency Knight Frank on Wednesday showed transaction volumes in London’s super prime residential market – which covers homes worth £10m and above – fell in the year to July compared with the previous 12 months. 22%.
Elegant townhouse in South Kensington, London, UK.
Benedek | Stocks | Getty Images
The decline was most pronounced in properties worth over £30 million, with just 10 sales compared with 38 last year, which the report attributes to increased buyer discretion.
Stuart Bailey, head of London super-prime sales at Knight Frank, noted that uncertainty over the autumn statement had now replaced that of the election and that non-residents were not the only ones to be spooked by Labour’s expected tax changes. arriving group.
Ultra-wealthy British citizens are often very active in the super-luxury market, but are also on the sidelines ahead of possible changes to capital gains and inheritance taxes. This follows previously announced VAT (tax) charges for private schools.
“Non-property properties are part of the super-luxury market, but they’re not the whole story,” Bailey said by phone.
However, Bailey noted that this creates opportunities for other investors. US citizens who already pay US tax on their global assets, as well as so-called “90-day visitors” who stay below the tax threshold in the UK each year, may ultimately benefit from reduced competition.
“American buyers, especially those with a lot of cash, would be crazy not to think now is a good time to buy,” he said.
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