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Globally mobile millionaires threaten to desert Britain over tax

[July 19, 2024] By Sinead Cruise

LONDON (Reuters) -For ultra-wealthy entrepreneur Bassim Haidar, living in London has become an expensive indulgence he can no longer justify.

While new British Prime Minister Keir Starmer settles into No. 10 Downing St, Haidar is searching for homes in Greece and Monaco, because a proposed inheritance tax revamp will make Britain a 'no go' zone for the rich, he says.

Starmer says the overhaul will make Britain's tax system fairer and raise funds for stretched public services.

While supportive of some reform, Haidar says the proposed changes could harm the economy if international business owners choose to quit Britain, or avoid moving here, undermining its reputation as an incubator for fledgling firms.

The recently ousted Conservative government outlined surprise plans in March to phase out Britain's centuries-old 'non dom' tax regime, which spares wealthy individuals from paying tax on income earned overseas.

But in the run-up to its July 4 election win, Starmer's left-leaning Labour party pledged to also scrap permanent reliefs 'non doms' born outside the UK could obtain if they put non-UK assets into a trust within 15 years of moving to Britain.

Now the dust has settled on Labour's return to power, Haidar wants Starmer and finance minister Rachel Reeves to rethink these plans, and to replace them with a new six-figure annual tax on people with net worth in excess of 5 million pounds ($6.52 million).

Haidar estimates a 150,000 pound levy could raise an additional 4 billion pounds a year for the government, boosting state coffers without triggering an exodus of the non-dom wealthy.

"The notion that the UK is simply too good to leave is incorrect," the 53-year old Nigerian-born, Lebanese citizen told Reuters.

"To be taxed so heavily on wealth generated outside Britain, perhaps years before people even moved to the UK, is unfair," he said, urging the government to sit down with globally-mobile millionaires and discuss tax reforms that he said may put UK jobs at risk.

Organisations like Patriotic Millionaires UK are also campaigning to introduce annual wealth levies on the super-rich.

Setting a 2% tax at a threshold of 10 million pounds a year would impact around 20,000 people, but raise up to 24 billion pounds a year, the group estimates.

NUMBER CRUNCHING

Investment firms, wealth managers and private bankers who provide financial services to around 70,000 UK-based individuals with 'non-dom' status are on high alert for when the historic tax overhaul might begin.

The Labour government reckons it can raise an extra 5 billion pounds a year by tackling domestic tax avoidance. Assessing how much more could be raised by changing tax perks on offshore trusts is more difficult.

"It is not possible to directly measure how much foreign income non-doms using the remittance basis have, and therefore what the potential tax base is," the independent Institute for Fiscal Studies said in a report published in March.

Inheritance tax raised 2.1 billion pounds between April and June, 83 million pounds more than the same period a year earlier, UK tax authority data published this week showed.

Britain has around 37,000 non-doms who opt to be taxed on a 'remittance basis'. This means UK taxes are not charged on their foreign income or capital gains unless they are remitted to the UK.

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A drone view of London's skyline after daybreak, in London, Britain July 7, 2023. REUTERS/Yann Tessier/File Photo

According to the IFS, those people collectively paid about 6 billion pounds in UK income tax, National Insurance contributions and capital gains tax in 2020–21.

Threats by the wealthy to quit unfriendly tax regimes are far from new, and some wealth advisers say London's status as a culturally diverse city with world-class schools will ultimately persuade the well-heeled to acquiesce.

But a desire to shield his family wealth for future generations far outweighed the inconvenience of moving to another country, Haidar said.

Britain is likely to lose nearly one in six of its U.S. dollar millionaires by 2028, according to the UBS Global Wealth Report for 2024 published earlier this month.

The Swiss bank cited the high base number of super-rich in the UK, the implications of the Russia-Ukraine war and the lesser effect of Britain's decision to abolish its 'non dom' tax perks as reasons for the sharp fall.

UBS forecast the number of dollar millionaires in Britain would fall by 17% to around 2.5 million in 2028.

In contrast, the total of dollar millionaires in the United States and in France was forecast to rise by 16% by 2028, in Germany by 14%, in Spain by 12% and in Italy by 9%.

In its March report, the IFS said there was "only limited evidence on how non-doms would respond to higher taxes."

INVESTOR APPEAL

Proposals to tighten taxation loopholes which benefit the wealthy come as UK financial regulators redouble efforts to make Britain more attractive to global companies and investors.

Last week Britain's Financial Conduct Authority unveiled a revamp of corporate listing rules aimed at enticing owners of promising private firms to go public on the London Stock Exchange.

But Haidar has mothballed plans to list his financial services firm Optasia in Britain and begun talks with alternative listing venues in countries with more favourable tax regimes.

"If those already here are now looking to leave, how can you even begin to attract new ones when the new system is set to be even more punitive?" he said.

David Lesperance, managing director of tax adviser Lesperance & Associates, told Reuters the government should not underestimate the ease and pace at which wealthy families could quit the UK, and how countries like Dubai and Singapore were striving to attract them.

Several of his clients were considering relocation to as many as 17 alternative tax jurisdictions, including Ireland, Malta and Portugal.

"Wealth does not stay still anymore. It doesn't have to. The golden geese have wings and they will fly," he said.

($1 = 0.7669 pounds)

(Editing by Christina Fincher)

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