‘Petrified’ non-doms poised to flee UK over Labour’s tax plans, say experts

 

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‘Petrified’ non-doms poised to flee UK over Labour’s tax plans, say experts

 

Prospect of party closing Tory ‘loopholes’ if elected prompts some wealthy individuals to explore a move overseas

 

Rupert Neate

Rupert Neate Wealth correspondent

Sat 13 Apr 2024 06.00 BST

https://www.theguardian.com/politics/2024/apr/13/uk-non-doms-uk-labour-tax-plans

 

“People are jumping on planes right now and leaving,” said Nimesh Shah, the chief executive of Blick Rothenberg, an accountancy firm that specialises in advising very rich “non-doms” on their tax affairs. “I am not being dramatic, they are leaving right now.”

 

Shah said his clients – some of the richest people in the country – were “petrified” of plans to abolish the “non-domicile” regime, through which for the past 225 years wealthy people have been able to live in the UK and not pay tax on their overseas income.

 

Labour has long promised to end the non-dom regime – which was introduced under King George III in 1799 to allow subjects who lived part of the time in far-flung colonies to avoid paying tax in the UK – and raise billions in extra taxes to pay for free breakfast clubs in schools and more hospital and dental appointments.

 

However, Jeremy Hunt, the chancellor, surprised the wealthy – and Labour – by stealing the policy and announcing in the spring budget the abolition of the regime from April 2025. Instead of using the expected £2.7bn of extra tax raised to fund breakfast clubs and hospital appointments, Hunt promised to cut national insurance.

 

Labour responded by announcing plans go harder and to close “loopholes” in Hunt’s plan, including one that allowed those who will lose the tax-free status to still avoid paying inheritance tax on foreign assets held in offshore trusts.

 

Shah said: “We, and our clients, expected Labour to scrap it if they won the election. But no one expected the Conservatives to rush in there and scrap it first.”

 

He said his non-dom clients, many with fortunes stretching into the hundreds of millions of pounds, were shocked at the speed with which Hunt was “changing the rules of game and disrupting their lives when they had come to the UK to make a life here [under the non-dom rules]”. But he said Labour’s plans had the super-rich “petrified” and “actively looking at where to move to”.

 

Shah and several other advisers contacted by the Guardian said many non-dom clients were exploring moving to Italy, which introduced a scheme through which rich people could pay a “flat tax” of just €100,000 no matter how much money they earned.

 

France, Greece, Cyprus, Malta, Portugal and Spain have similar schemes designed to attract the wealthy and internationally mobile elite. Spain’s expatriates tax regime is nicknamed the Beckham law after David Beckham, who became one of the first people to use it when he was playing for Real Madrid.

 

Other UK-based non-doms are said to be considering moving to traditional tax havens such as Monaco, Switzerland, Dubai and Caribbean islands. However, recent academic research suggests super-rich people may not follow through with threats to move because they fear they would be “bored to death” in the often “culturally barren” locations.

 

 

Under non-dom rules, anyone registered as non-domiciled with HMRC does not have to pay UK tax on income and capital gains earned overseas – including on company shares or cash made from selling a second home – unless they bring their money into Britain or deposit it into a UK bank account. They can retain the status for up to 15 years but there is an annual fee of at least £30,000 after seven years.

 

There were 68,800 non-doms in the UK in 2021-22, according to the latest available HMRC data.

 

Under Hunt’s changes, new arrivals will only be able to avoid tax on overseas income for the first four years of living in the UK. After that, they will be taxed in full on their worldwide income and gains.

 

“I’ve got people who only moved to the UK recently, and have built their lives and businesses here and have their children in schools here,” said Shah. “But from next April they will be exposed to worldwide taxation. It is a cliff edge; it’s not surprising that they are looking at leaving.”

 

Miles Dean, a partner and head of international tax at the tax advisory firm Andersen, said his advice to clients was simple: “If you can leave within six months, make plans to leave now. The UK is no longer safe as a tax environment.”

 

Some of his clients, however, are not prepared to wait that long. “I spoke to two clients yesterday: one elder chap who is moving to Dubai, and another 40-year-old entrepreneur who sold a business a few years back and who is moving next month to Spain under the Beckham’s law regime,” he said.

 

“If you look around the world there are so many places designed to attractive wealthy people and with simple schemes. These people are highly mobile, many of them already have a second home somewhere – why would they stay in the UK?”

 

Research by the London School of Economics suggested that scrapping the non-dom regime would lead to just 0.3% – or 77 people – leaving the UK. Dean described this estimate as “ludicrous”. “The comments from me and the other advisers you’ve spoken to aren’t made up, these people will really leave. They are angry.”

 

Andrew Goldstone, a partner at Mishcon de Reya who specialises in advising high net worth people on offshore tax and trusts, said his clients thought the Conservative and Labour plans were “entirely politically motivated and economically foolish, on the basis that the very wealthiest will leave the UK and take with them their spending, investment, jobs and businesses”.

 

Sophie Dworetzsky, a partner advising the super-rich at Charles Russell Speechlys, said her clients thought Labour’s proposals “feel like trying to squeeze out every last drop until there’s nothing left”. She added: “We should be concerned about driving away internationally mobile individuals and the investment that could bring into the country, and the revenue raised from wealth creation.”

 

Controversy over the non-dom tax loophole went from being a niche issue among tax experts to wider public debate after it was revealed in 2022 that Rishi Sunak’s wife was using the status to avoid paying millions of pounds in tax on dividends she collected from her billionaire father’s IT business.

 

After widespread outrage, Akshata Murty said she would pay UK taxes on all future income as her tax arrangements were not “compatible with my husband’s [then] job as chancellor”, adding that she appreciated the “British sense of fairness”.

 

Other famous non-doms have included the steel magnate billionaire Lakshmi Mittal; the Daily Mail owner Lord Rothermere; the oligarch and former owner of Chelsea football club Roman Abramovich; Lord Ashcroft, the multimillionaire former deputy chair of the Conservative party; and Sir James Goldsmith and his children, including the Conservative minister and longtime friend of Boris Johnson, Zac Goldsmith.

 

A Treasury spokesperson said: “While bringing in an extra £2.7bn a year for public services by 2028-29, our new simpler system will remain internationally competitive to attract the best talent to the UK. New arrivals will benefit from 100% relief on foreign income and gains for their first four years as a UK tax resident, and there will be transitional arrangements in place for current non-doms.”

 

A Labour spokesperson said they did not believe the policy would lead to an exodus of non-doms. “We do not accept this argument,” they said. “Before the Conservatives stole Labour’s non-dom policy, they were making the exact same argument only to conveniently drop their warning sound when they adopted the policy.

 

“Labour’s proposals are about making the tax system fairer. If you make your home and do your business in Britain, then you should pay your taxes here too.”

 

Are you a non-dom? If you would like to talk about how this affects you, please contact me Rupert.Neate@theguardian.com