Britain’s ultra-wealthy exit ahead of proposed non-dom tax changes

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The Rise of the Robin Hood Tax

Street scene in Old Bond Street, Mayfair, London, United Kingdom.

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LONDON — Monaco, Italy, Switzerland, Dubai are just some of the destinations trying to lure the super-rich away from Britain ahead of planned changes to the controversial tax system for non-domiciled countries.

Almost two-thirds (63 percent) of wealthy investors have said they plan to leave the UK within two years or “shortly” if the Labour government goes ahead with its plans to abolish colonial-era tax breaks. However, 67 percent said they would not have emigrated to the UK in the first place, according to a new study by Oxford Economics examining the impact of these plans.

The UK's non-dom regime is a 200-year-old tax regime that allows people living in the UK but domiciled elsewhere to avoid paying tax on overseas income and capital gains for up to 15 years. As of 2023, an estimated 74,000 people enjoyed this status, up from 68,900 the previous year.

Labour last month set out plans to abolish the status, expanding on a promise from its election manifesto and intensifying earlier proposals by the previous Conservative government to phase out the regime over time. This came after Prime Minister Keir Starmer promised to improve fairness and shore up public finances. Further announcements are expected in the autumn budget statement on October 30.

Chancellor Rachel Reeves has said scrapping the scheme could raise £2.6 billion ($3.45 billion) over the course of the next government, but a study by Oxford Economics, produced earlier this month in partnership with lobby group Foreign Investors for Britain, estimates the changes will instead cost taxpayers £1 billion by 2029/30.

CNBC reached out to the Treasury Department for comment but did not immediately receive a response.

“We are raising the alarm that this is a dangerous time,” Macleod-Miller, CEO of Foreign Investors for Britain, told CNBC by phone. “If the government doesn't listen, revenues will be at risk for generations.”

Other countries sense the fear and actively promote their legal systems.

Leslie Macleod Miller

CEO at Foreign Investors for Britain

The proposals would see the concept of 'residence' abolished and replaced by a residency-based system, while the number of years that money earned abroad remains tax-free in the UK would be reduced from 15 to four.

Individuals also have to pay inheritance tax after 10 years of residence in the UK and remain liable to pay tax for 10 years after they leave the country. They also cannot avoid inheritance tax on assets held in trust.

However, Macleod-Miller, an asset manager who set up the lobby group in response to the proposals, said the changes would hinder wealth creation and called for a graduated tax system instead.

According to the Oxford Economics study, which surveyed 72 non-doms and 42 accountants representing a further 952 non-dom clients, almost all (98%) said they would leave the UK earlier than originally planned if the reforms were implemented. The 72 non-doms surveyed are said to have invested £118 million each in the UK economy.

The majority (83%) cited inheritance tax on their worldwide wealth as the main reason for moving, while 65% also cited changes in income and capital gains taxes.

Where the rich go

This trend comes at a time when other countries are reforming their tax systems to provide incentives to wealthy investors.

According to industry experts and brokers CNBC spoke to, Switzerland, Monaco, Italy, Greece, Malta, Dubai and the Caribbean island of the Bahamas are among the target countries that are proving particularly attractive to wealthy investors.

“Wealthy investors today have a lot of choice and many domiciles competing 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 shattered Britain's reputation as a safe haven in recent years.

Skyline of Monte Carlo surrounded by sea and mountains, Monaco.

Alexander Spatari | Moment |

“It's just another blow,” she said. “I'm not sure they're all leaving, but they're definitely asking questions and taking their time to see what changes.”

A record number of millionaires will leave the UK this year, according to a report published in June by migration consultancy Henley & Partners. The general election scheduled for July is seen as another political turning point after Brexit. It is estimated that the UK will see a net loss of 9,500 high net worth individuals in 2024, more than double the previous year's figure (4,200).

“It's definitely a danger. The markets are so fungible these days. It's easy for people to move. It's easy for people to move their companies,” Marcus Meijer, CEO of real estate investor Mark, told CNBC's “Squawk Box Europe” last week about the changes to Monaco's non-dom rights.

Many people are worried. They would rather get out now before it is too late

James Myers

Director at Oliver James

Alternatives available to the super-rich include unlimited inheritance tax exemptions in Monaco, Malta and Gibraltar, and the abolition of income, capital gains and inheritance taxes in Dubai. In Italy and Greece, flat-tax systems allow the rich to avoid tax on their worldwide wealth for up to 15 years for an annual fee of €100,000.

Italy last month doubled the fee for new arrivals to 200,000 euros ($223,283). The economy minister said the measure was aimed at avoiding “tax breaks” for the rich. But Macleod-Miller said the regime was likely to remain attractive for the top 1 percent even at a slightly higher rate.

“Other countries are sensing the fear and are actively promoting their jurisdictions to attract investment and families,” Macleod-Miller said.

“Italy is one of those countries that courts the rich and seems to believe that if you treat them well, they will donate,” he added.

Prime real estate in the UK faces a setback

This is also having an impact on the British property market. James Myers, director of London-based luxury real estate agency Oliver James, observed an increase in sales activity in the run-up to the Labour elections in July. But now around 30 to 40 percent of clients are lowering their asking prices in order to sell more quickly.

“A lot of people are worried. They would rather get out now before it's too late,” Myers told CNBC by phone. Many of Myers' multimillionaire and multibillionaire clients have already started putting down roots in Monaco and Dubai, and Italy has also “become a thing” recently, he said.

Transactions in London's super-prime residential property market, which includes homes valued at £10 million and more, fell 22 percent in the 12 months to July compared with the previous 12 months, according to overall market data released on Wednesday by property agency Knight Frank.

Elegant townhouses in South Kensington, London, England, UK.

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The decline was most notable for properties valued over £30 million, with just 10 sales compared to 38 the previous year, which the report attributes to greater freedom of choice for buyers.

Stuart Bailey, head of super-prime sales for London at Knight Frank, noted that the uncertainty surrounding the Autumn Statement had now replaced that surrounding the election and that non-domestic residents were not the only group unsettled by Labour's expected tax changes.

The very wealthy Britons, who are typically very active in the super-prime market, are also waiting for possible changes to capital gains and inheritance tax. These changes follow the previously announced VAT (tax levy) on private schools.

“Non-doms are one sector of this super-prime market, but they are not the be-all and end-all,” Bailey said by phone.

However, this creates opportunities for other investors, Bailey noted. US citizens, who are already subject to US tax on their worldwide assets, and so-called 90-day investors, whose annual stay in the UK is 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 now is a good time to buy,” he said.