Street scene in Old Bond Street, Mayfair, London, UK.
Pawel Libera | The Image Bank | Getty Images
LONDON — Monaco, Italy, Switzerland, Dubai. They are just some of the destinations trying to lure the UK’s rich ahead of proposed changes to the country’s divisive tax regime.
Almost two-thirds (63%) of wealthy investors said they planned to leave the UK within two years or “soon” if the Labor government went ahead with plans to overturn the colonial-era tax break, while 67% said that he would not have immigrated to Britain in the first place, according to a new study by Oxford Economics, which assesses the effects of the plans.
The UK non-domicile status is a 200-year-old tax rule that allows people who live in the UK but are domiciled elsewhere to avoid paying tax on income and capital gains abroad for up to 15 years. From 2023, it is estimated 74,000 people enjoyed the status, up from 68,900 the previous year.
Labor last month started raft to abolish the regime, extending the commitment set at his election proclamation and reinforcing previous proposals from the previous Conservative government phase out the regime over time.
It comes as Prime Minister Keir Starmer has pledged to improve justice and strengthen public finances, with further announcements expected early next week at Labour’s annual conference and during the autumn budget statement on October 30.
Finance Minister Rachel Reeves said scrapping the program could cause £2.6 billion ($3.45 billion) during the next administration. But research by Oxford Economics, produced earlier this month in partnership with lobby group Foreign Investors for Britain, estimates the changes will cost taxpayers £1bn by 2029/30.
CNBC reached out to the Treasury Department for comment and did not immediately receive a response.
“We are sounding the alarm that this is a dangerous time,” Macleod-Miller, Britain’s managing director of Foreign Investors, told CNBC by phone. “If the government doesn’t listen, it will put revenue at risk for generations.”
Under the proposals, the concept of “domicile” will be scrapped and replaced by a system based on permanent residents, while the number of years that money earned abroad remains tax-free in the UK will be reduced from 15 to four .
Other countries smell the fear and are actively promoting their jurisdictions.
Leslie Macleod-Miller
Managing Director at Foreign Investors for Britain
Individuals will also have to pay inheritance tax after 10 years of residence in the UK and will remain liable for 10 years after leaving the country. They will also be prevented from avoiding inheritance tax on assets held in trust.
But Macleod-Miller, a private wealth practitioner who set up the lobby group in response to the proposals, said the changes would hinder wealth creation and is instead calling for a graduated tax regime.
According to Oxford Economics’ survey of 72 non-domiciled and 42 tax advisers representing a further 952 non-domiciled clients, almost all (98%) said they would emigrate from the UK earlier than previously planned; if the reforms are implemented. The 72 non-households surveyed are said to have invested £118m each in the UK economy.
The majority (83%) cited inheritance tax on their assets worldwide as a key motivation for leaving, while 65% also cited changes to income and capital gains tax.
Where the rich move
It comes as other countries are shaking up their tax regimes to incentivize wealthy investors.
Switzerland, Monaco, Italy, Greece, Malta, Dubai and the Caribbean island of the Bahamas are among the various destinations proving most attractive to wealthy investors, according to industry experts and agents with whom CNBC spoke.
“Affluent investors have a lot of options now and a lot of housing is fighting for them,” Helena Moyas de Forton, managing director and head of EMEA and APAC at Christie’s International Real Estate, told CNBC.
Moyas de Forton, whose team advises clients on international relocation, said Labour’s plans were the latest in a series of political developments that have shaken the UK’s reputation as a safe haven in recent years.
Monte Carlo skyline surrounded by sea and mountains, Monaco.
Alexandros Spathari | Moment | Getty Images
“It’s just another hit,” he said. “I’m not sure if they’re all leaving, but they’re definitely questioning and taking their time to see what changes.”
“It’s definitely a risk. Markets are so fungible these days. It’s easy for people to move their homes. It’s easy for people to move their businesses,” said Marcus Meijer, CEO of real estate investor Mark, on CNBC “Squawk Box Europe” the non-dom changes last week from Monaco.
A lot of people are worried. They’d rather leave now before it’s too late
James Myers
director of Oliver James
Among the alternatives available to the ultra-rich are unlimited inheritance tax exemptions in Monaco, Malta and Gibraltar and no income, capital gains and inheritance tax in Dubai. In Italy and Greece, flat tax schemes allow the wealthy to avoid paying tax on their global assets for an annual fee of €100,000 for up to 15 years.
Italy last month doubled her pay for new arrivals to 200,000 euros ($223,283) in a move her finance minister said was designed to avoid “fiscal favors” for the wealthy. But Macleod-Miller said the scheme would likely remain attractive to the top 1 per cent even at a slightly higher rate.
“Other countries smell the fear and are actively promoting their jurisdictions and attracting their investments and their families,” Macleod-Miller said.
“Italy is one of those countries that flirts with the rich and seems to think that if you treat them well they will contribute,” he added.
UK prime real estate is taking a hit
This is also affecting the UK’s prime property market. James Myers, director at London-based luxury property agency Oliver James, has seen an uptick in sales activity ahead of the Labor election in July. But now, about 30% to 40% of customers lower asking prices to create a faster sale.
“A lot of people are worried. They’d rather get out now before it’s too late,” Myers told CNBC by phone. Many of Myers’ multi-millionaire and multi-billionaire clients have already started putting down roots in Monaco and Dubai, with Italy “becoming a thing” more recently, he said.
Transactions in London’s super-prime residential market, which covers homes worth £10 million and above, fell 22% in the year to July compared with the previous 12 months, according to market data published on Wednesday by the agency. Knight Frank properties.
Elegant townhouses in South Kensington, London, England, United Kingdom.
Benedek | Istock | Getty Images
The decline was sharper in properties worth more than £30m, with just 10 sales taking place compared to 38 the previous year, which the report attributed to higher buyer discretion.
Stuart Bailey, Knight Frank’s head of super-prime sales for London, noted that the uncertainty of the Autumn Statement had now replaced election uncertainty, with non-residential groups not the only group spooked by Labour’s expected tax changes .
Ultra-wealthy UK citizens, who are typically active in the super-prime market, are also on hold over possible changes to capital gains and inheritance tax. It follows the announced VAT (taxation) charges for private schools.
“Non-dom is one area of that super premium market, but it’s not the be-all and end-all,” Bailey said by phone.
That, however, creates opportunities for other investors, Bailey noted. US citizens, who are already subject to US tax on their worldwide assets, and so-called 90 dayers, whose annual residence in the UK falls below the tax threshold, could ultimately benefit from reduced competition .
“US buyers, especially those with a lot of cash, would be crazy not to think this is a good time to buy,” he said.
