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

London — Monaco, Italy, Switzerland, Dubai. These are just some of the destinations set to lure Britain’s super-rich ahead of proposed changes to the country’s divisive anti-dam tax system.

Almost two-thirds (63%) of wealthy investors said they planned to leave the UK within two years, or “soon” if the Labor government goes ahead with its plans to scrap colonial-era tax breaks. However, 67% said they had no intention of doing so. They are the ones who moved to the UK in the first place, according to new research from Oxford Economics that assessed the impact of the plan.

Britain’s non-Dom system is a 200-year-old tax system that allows people living in the UK but domiciled elsewhere to avoid paying tax on income and capital gains earned overseas for up to 15 years. An estimated 74,000 people will enjoy this status in 2023, up from 68,900 the previous year.

Last month, Labor set out plans to abolish the position, extending a promise made in its election manifesto and reinforcing the previous Conservative government’s proposal to phase out the government over time.

The announcement comes as Chancellor Keir Starmer pledges to improve fairness and strengthen public finances, with further announcements to be made during Labor’s annual general meeting early next week and the autumn budget on October 30. It is planned.

Finance Minister Rachel Reeves said scrapping the scheme could raise 2.6 billion pounds ($3.45 billion) in revenue by the next government. But a study by Oxford Economics, produced earlier this month in conjunction with UK lobby group Foreign Investors, estimated that the changes would cost taxpayers £1bn by 2029/30. .

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

“We are sounding the alarm that these are dangerous times,” McLeod Miller, CEO of Foreign Investors, told CNBC by phone. “If the government doesn’t listen, generations of incomes will be at risk.”

The proposals would abolish the concept of ‘domicile’ and replace it with a residency-based system, while reducing the number of years money earned overseas can be tax-free in the UK from 15 to four years.

Individuals will also have to pay inheritance tax after living in the UK for 10 years, and the tax liability will remain for 10 years after leaving the UK. You will also no longer be able to avoid inheritance tax on assets held in trust.

But Mr MacLeodmiller, a private wealth practitioner who set up a lobby group in response to the proposals, said the changes would discourage wealth creation and called for a graduated tax system instead.

The Oxford Economics study also surveyed 72 non-domestic clients representing 952 non-domestic clients and 42 tax advisors, and found that virtually all (98%) would respondents said they would move from the UK sooner than planned. The 72 non-kingdoms surveyed are said to have each invested £118m into the UK economy.

A majority (83%) cited inheritance taxes on assets around the world as their main motivation for retirement, and 65% also cited changes to income and capital gains taxes.

It comes as other countries are reforming their tax systems to encourage wealthy investors.

Switzerland, Monaco, Italy, Greece, Malta, Dubai and the Caribbean islands of the Bahamas are the most attractive destinations for wealthy investors, according to industry experts and agents interviewed by CNBC.

Helena Moyas de Forton, managing director and head of EMEA and APAC at Christie’s International Real Estate, told CNBC: “Wealthy investors now have many options, and many home bases are We are fighting for them.”

Moyas de Forton, whose team advises clients on overseas migration, said Labor’s plans were the latest in a series of political developments that have undermined Britain’s reputation as a safe haven in recent years.

“It’s another hit,” she said. “I don’t know if they’re all going to quit, but they’re definitely asking questions and taking the time to figure out what’s changing.”

A record number of millionaires are expected to leave the UK this year, according to a June report from immigration consultancy Henley & Partners, which said the July general election will be the start of the post-Brexit era. It is said that the political mobility of the country has further increased. It is estimated that the UK will record a net loss of 9,500 wealthy people in 2024, more than double last year’s 4,200.

“This is definitely a risk,” Markus Meyer, CEO of real estate investment company Mark, told CNBC’s “Squawk Box Europe.” It’s easy to leave. It’s easy to move your business.” Non Dom changed last week.

Alternatives available to the ultra-wealthy include indefinite inheritance tax exemptions in Monaco, Malta and Gibraltar, and income tax, capital gains and inheritance tax exemptions in Dubai. In Italy and Greece, flat-rate tax systems allow wealthy people to avoid paying taxes on their assets around the world for up to 15 years by paying an annual fee of 100,000 euros.

Last month, Italy doubled the fee for new arrivals to 200,000 euros ($223,283) in a move to avoid “fiscal preferential treatment” for the wealthy. But Mr MacLeodmiller said the regime was likely to remain attractive to the top 1%, even if interest rates were slightly higher.

“Other countries are also smelling the fear and are aggressively promoting their jurisdictions and attracting investment and families,” McLeodmiller said.

“Italy is one of those countries that likes the wealthy and seems to think that if you take care of them, they will contribute,” he added.

This is also having an impact on the UK’s major property markets. James Myers, a director at London-based luxury property firm Oliver James, sees increased sales activity in anticipation of the Labor election in July. But now, about 30% to 40% of customers are lowering their asking price to get a faster sale.

“A lot of people are worried. They want to get out now before it’s too late,” Myers told CNBC by phone. Many of Myers’ millionaire and billionaire clients have already started putting down roots in Monaco and Dubai, and Italy has recently “been on the radar,” he said.

London’s ultra-luxury market for homes worth more than £10m saw more transactions in the year to July than in the previous 12 months, according to market-wide data published by estate agency Knight Frank on Wednesday. In comparison, it decreased by 22%.

The decline was most pronounced for properties over £30 million, with just 10 sales compared to 38 the previous year, which the report attributed to increased buyer discretion.

Stuart Bailey, head of London superprime sales at Knight Frank, said the uncertainty of the Autumn Statement had given way to the uncertainty of the election, with non-state voters fearing Labor’s anticipated tax changes. He pointed out that this is not the only thing.

Ultra-wealthy British nationals, who typically participate actively in the super-prime market, are also in “wait-and-see” mode ahead of potential changes to capital gains and inheritance tax. This follows a previously announced VAT (tax) charge for private schools.

“Non-Dom is one segment of the super-prime market, but it’s not the whole story,” Mr. Bailey said by phone.

But it does create opportunities for other investors, Bailey noted. US citizens, who are already subject to US tax on their assets around the world, and so-called 90-day residents, who spend less than the tax threshold in the UK each year, will ultimately benefit from less competition. There is a possibility of receiving.

“U.S. buyers, especially those with lots of cash, would be crazy not to think now is a good time to buy,” he said.