On August 28, 2024, a Ford GT supercar with Kuwaiti license plates was parked outside a restaurant in Burlington Gardens near Bond Street in London, England.
Mike Camp | In Pictures | Getty Images
LONDON – Britain’s wealthy are feeling the pinch after a series of targeted tax increases in the Labor government’s budget, which they say failed to heed warnings of an outflow of wealth and investment.
Finance Minister Rachel Reeves confirmed last week that the UK’s controversial non-dom regime for wealthy foreigners will be scrapped from April 2025, with all long-term residents to have their global assets including assets held in the UK) are subject to inheritance tax (IHT).
The crackdown is part of a wider measure targeting senior figures, with private equity bosses, private schools, second homes and private jets all facing new taxes.
Reeves said her £40bn tax increase budget was necessary to plug the country’s fiscal black hole, boost economic growth and ease pressure on “working people”. But many wealthy people say they are now being targeted and are following pre-budget promises to leave the UK, taking their investments with them.
“You’re going to see a big movement of people from the City (of London) and from the Times Rich List group,” David Lesperance, founder and principal at international tax and immigration advisory firm Lesperance and Associates, told CNBC on Thursday via Video call. “I think they can leave en masse.”
In the first two days of Reeves’ announcement, Lesperance said he had received requests from seven clients to trigger the UK’s exit strategy, as well as additional requests from wealthy British taxpayers hoping to leave by April. Three new inquiries. He said this increased the number of pre-emptive actions taken by clients before and after Labour’s July 4 election victory.
Non-residents face major tax hit
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 tax on income and capital gains earned overseas for up to 15 years Pay taxes. As of 2023, it is expected 74,000 people The number of people with this status is up from 68,900 last year.
Reeves said on Wednesday her plan was about “equity” and that she was scrapping “outdated residence concepts” and replacing them with new residence-based plans that were “internationally competitive”.
Under new rules that come into effect in April 2025, anyone who has lived in the UK for more than four years will need to pay UK tax on their overseas income and gains. New arrivals to the UK will receive 100% UK tax relief for the first four years as long as they have been non-resident for the past 10 years.
Residents will also pay inheritance tax (IHT) on their worldwide assets, but existing non-DOMs will receive temporary repatriation relief for up to three years on funds they bring into the UK.
The government says non-dom measures alone will raise £12.7 billion during parliament. This does not include the £21.1 billion that the independent Office for Budget Responsibility (OBR) predicts will be raised by early reforms to the non-dom system announced by the Conservatives in March.
“With the systems in place, we will remain extremely competitive internationally,” a Treasury spokesperson told CNBC at Wednesday’s post-budget press conference.
However, Steven Porter, partner and head of tax disputes and investigations at law firm Pinsent Masons, said the jury was still out on whether the measures would raise or lower taxes in the long term and the government should be cautious. Drive people out.
“While draft legislation has now been released, the government still has time to create a new non-dom regime for internationally mobile individuals,” Porter said in a statement.
Concerns about wealth outflow
Lobby groups have been warning for weeks of impending wealth outflows amid the chancellor’s hardline approach, arguing that jurisdictions such as Italy, Switzerland and Dubai ‘Smells fear’ and seduces Britain’s super-rich.
The Federation of Foreign Investors in Britain (FIFB), an organization set up after Labour’s election, has put forward a proposal to the government for an Italian-style graduated tax system (TTR), which would see wealthy non-UK citizens charged a fixed annual fee. Tax exemption for non-UK assets.
If they choose to layer (the system), you’re going to howl at the fat cat.
David Lesperance
Founder and Principal of Lesperance and Associates
FIFB chief executive Leslie Macleod Miller on Thursday slammed the government’s plans for causing an “economic quagmire” and urged the Treasury to reconsider TTR to “keep the UK attractive to international investors” , while ensuring a fair contribution to public finances”.
Lesperance also contributed to FIFA’s proposal but noted that getting the government to bow to pressure from lobbyists would be politically challenging.
“If they choose to layer (the system), you’re going to howl at the fat cat,” he said.
Super rich raise interest rates further
In addition to the non-dom changes, private equity managers will now pay higher capital gains tax (CGT) on carried interest – from 28% to 32% – reducing their share of profits when exiting investments. At the same time, the capital gains tax rate on other assets was also raised from 20% to 24%.
Other measures targeting the wealthy include increasing stamp duty on second homes, increasing value-added tax (VAT) on private school fees and increasing air passenger tax on private jets by 50 per cent.
Nick Ritchie, senior director of wealth planning at RBC Wealth Management, blasted the additional measures last week, saying they were further exacerbating wealth outflows.
“Increased air passenger tariffs on private jet travel will be a very small price to pay as they (non-locals) rush through departure lounges and flee the UK altogether,” Ritchie said in a statement.
However, Lesperance acknowledged that the government was not doing as much as it should have, noting that the fleeing rich “dodge a bullet” because they were not subject to an exit tax, a tax on all their realized gains. Taxes – at least for now.
“I still think export taxes could be a tool in the toolbox. That could be the next thing,” he said.
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