Private banks and advisers to Britain's super-rich say some clients may quit the country if Labour wins next month's general election and pushes ahead with plans to abolish tax protections on offshore wealth they wanted to pass to future generations.
Keir Starmer's Labour Party, which leads in the opinion polls and which published its manifesto on Thursday, is targeting Britain's wealthiest people to support a public spending program focused on schools, welfare, energy reform and the National Health Service.
Around 70,000 people who live in Britain but pay little or no UK tax on the money they earn overseas were already facing higher bills after the incumbent Conservative government said in March it would phase out this "non-dom" status over time.
But in proposals published in April, Labour said it would move faster to scrap relief on foreign-earned income and expand Britain's inheritance tax regime to include foreign assets held in trusts designed to mitigate such levies.
Critics say the proposed changes could do Britain's lukewarm economy more harm than good, making the country a less attractive place for the world's wealthy to live and invest in, reducing overall tax revenues rather than growing them.
The Labour Party did not immediately respond to a request for comment.
Economists say overall tax levels are likely to approach an all-time high whoever wins the election, despite promises by both main parties not to increase major tax rates.
Labour has said it will not raise income tax or National Insurance social security contributions on working people. But it has pledged to narrow the gap between UK tax owed and tax collected, which widened by 5 billion pounds to 36 billion pounds ($46 billion) in the 2021/22 tax year.
Catherine de Maid, partner at law firm Burges Salmon, said her largest clients were prepared to pay higher tax on earnings and capital gains, but the inheritance duty proposal was a "deal breaker" for at least three of them.
"Inheritance tax in the UK is high at 40%, and (clients) are not willing to pay this rate of tax on assets which were often acquired or earned many years before they had any connection with the UK. They would prefer to leave altogether," she said.
Spain, Italy, Switzerland, Dubai and Singapore are proving popular among wealthy UK families seeking a lower-tax place to live, said Nigel Green, CEO of wealth adviser DeVere Group.
There is no comparable inheritance tax in the United Arab Emirates, Singapore or most Swiss cantons, while Spain and Italy impose rates of 34% and 8% respectively, data from PWC shows.
Traditionally, governments who change inheritance tax treatment of trusts have not applied changes retroactively to existing structures.
But law firms and advisers say Labour is unlikely to permit "grandfathering" of such schemes, citing comments attributed to shadow finance minister Rachel Reeves in some media reports.
STAY OR GO
Income tax changes under a Labour government might also prompt thousands of roving international entrepreneurs and financiers who have set up home in Britain to spend less time in the country.
Labour has pledged to reform how performance-related pay earned by private equity investors is taxed as capital gains.
Most wealthy individuals were "internationally mobile" and devising ways to drop UK tax residency was high on their list of plans, according to Mark Routen, Head of Tax at UK and Dubai-based wealth manager Hoxton Capital Management.
"This is not a drastic as it sounds, as under the statutory residence test in the UK, it could just mean a modest reduction in the number of days they can stay here depending on what basis they are considered resident," Routen said, adding that "several" clients had or were considering making this move.
Alexandra Hewazy, Head of Key Clients and Resident Non Dom Wealth Advisory at Barclays Private Bank said uncertainty was encouraging some to reduce exposure to the UK.
"This isn't just their asset base but can also be their physical presence and the intellectual capital which comes with this," she said.
Charging capital gains tax at the same rate as income tax would raise 12 billion pounds a year, while value-added tax (VAT) on financial services - largely consumed by the well-off - could also raise around 9 billion pounds, analysis by Richard Murphy, political economist and professor of accounting at Sheffield University, shows.
"Can this sector and those who earn most in it afford to pay more tax? Yes, more so than absolutely anybody else in society," said Murphy, a former adviser to ex-Labour leader Jeremy Corbyn.
James Whittaker, head of UK wealth management and CEO of DB UK Bank, said most ultra high net worth individuals were holding their nerve before making big decisions.
"There's an enormous amount to weigh up when switching from one jurisdiction to another. We continue to talk to people who want to move wealth here, particularly from the United States, but they want to see detailed legislation first," he added.
And some wealthy Britons welcome Labour's proposed reforms.
Rebecca Gowland, executive director at Patriotic Millionaires UK, a non-partisan network of wealthy individuals who believe the super-rich should pay more tax, told Reuters some members have had, or still have, non-dom status but are "categorical" in their support of plans to close the loopholes.
"While this might lead to a small number of people considering whether or not they want to leave, the vast majority of millionaires will not be going anywhere," Gowland said.
© Thomson Reuters 2024.
21 Comments
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ArtistAtLarge
Good. Bye. Don't let the door hit you on the way out. Thanks for nothing.
sakurasuki
Blame EU then Brexit. Blame wealthy people then those people left.
Next what to blame?
Jimizo
The EU has its faults. Criticism was and us justified.
Now even the most ardent Brexiteers cannot come up with any serious benefits of leaving the EU.
Getting them to pay a fairer share of tax is not ‘blame’.
Moonraker
Isn't this the kind of thing the Brexiteers would call "project fear"? It's ok anyway. They are nett drain on the economy when all is considered. And any trickle-down has been revealed to be a chimera. Their "investments" have done nothing for UK productivity growth either. On the other hand, the UK missed the boat for real investment when interest rates were low and the stupid Tories were on their kick-the-poor austerity drive.
Jimizo
Sometimes I hear how the Tories bringing back Cameron was a signal that they were trying to shift back more towards the centre.
Cameron a centrist? Austerity was rank. It failed to deliver the savings it was supposed to while the suffering it caused to the most vulnerable was horrendous.
Pukey2
Excuse me if I don't give a d@mn about millionaires' problems.
Chairman Rexton
Inheritance tax is simply communist theft.
Jimizo
Which podcaster told you this?
albaleo
And amassing huge amounts of money in savings accounts is simply capitalist theft.
Pukey2
Google inheritance tax and you'll find more info. I don't know which countries you consider communist, but here's a few examples of countries which do NOT have inheritance taxes:
Russia
China (Mainland, HK and Macau. For Taiwan there may be an estate tax of 10% for assets over TWD 12mil)
A few countries which DO have inheritance taxes:
Japan (highest tax rates globally, 10 to 55%).
South Korea (up to 50%), France (5-60%), UK (up to 40%), USA (up to 40%).
The only country which is definitely communist and has inheritance taxes is Vietnam (10%).
Chairman, try again.
Mr Kipling
Fixed it.
Yes it is but only a tiny number of people pay any at all as the threshold is quite high . If over the threshold then setting up a trust to avoid this is exceedingly easy.
factchecker
It's not like they pay their fare share anyway. The mega rich avoid tax and have their cash stashed away in tax havens. So they won't be missed.
Redemption
Best news I've read in a long time.
Chairman Rexton
You seem to have an unhealthy obsession with podcasters, don't you?
Inheritance tax is theft/confiscation at any level, from billionaires right down to the hard-working mums and dads who want to pass on something to their kids. Why should governments have a right to an inheritance ahead of family and whoever else the deceased wants to give their assets to? They tax us all through our lives and then basically charge us to die as well. And it's not like governments have a good track record of spending taxation wisely.
Back in the 1960s IIRC all the states in Australia had an inheritance tax, then Queensland abolished it. That prompted large migration from the other states to Queensland, which then forced the other states to abolish theirs as well to stem the outflow of people (and the tax base, by extension).
Governments would be far better off closing tax loopholes for the mega-rich and corporations if they want to boost collections instead of raiding coffins for other peoples' money. But that won't happen because the people at the top, regardless of their political affiliation, have their plunder safely tucked away in offshore tax havens and have no intention of closing loopholes that would expose THEIR wealth to the taxes they slug on the rest of us. Socialists love inheritance taxes because they "get the rich", but in reality they don't contribute much to the tax pot in the grand scheme of things. And here in Japan, punitive inheritance taxes have been a key factor in the akiya problem.
Chairman Rexton
The principle is communist, regardless of who does and doesn't practice it.
Buh-bye.
Tim Sullivan
Taxing dead people is stupid -- we pay enough tax as it is while we are on this planet. I have no intention of making a will. I'll leave my heirs to deal with the financial mess as I beam down on them from heaven...
Pukey2
Chairman:
So, by your logic, UK, US and Japan are communist countries. OK. Bye Felicia.
Jimizo
Maybe your podcasters didn’t tell you the Labour Party plan to to this as well.
Whether they do it is another matter.
I think we might have a possible Labour supporter here.
You’ll be drinking soy lattes before you know it.
Gene Hennigh
When I was growing up being rich was a good thing. But even the rich could pitch in a little. Heck, multi-billionaires could kick in a little. If they gave one or two million dollars to help the economy and the working class, they could still pay their rent and buy food and all that, without wringing their hands about the power bill. Why wouldn't the rich help the country that allowed them the chance to become rich? Greed is one of the great sins, isn't it. Be regular Joes and buy your yacht cover next year.
Strangerland
Let them. Living in the UK is a privilege. If they don’t want to pay they can leave.
Moonraker
Hilarious. Better to learn what "communist" means before coming on and spouting such rubbish.