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The Somerset city of Bruton has quite a lot of rich owners, together with the previous chancellor George Osborne, who in 2015 took the first steps in direction of abolishing Britain’s non-domiciled tax regime for overseas residents. Till lately, it was additionally house to Iwan and Manuela Wirth, Swiss co-founders of Hauser & Wirth, the worldwide modern artwork gallery.
The Wirths have relocated to Switzerland, having been formally resident within the UK since 2016. That they had household {and professional} causes and weren’t non-doms, a standing that was lastly abolished by the federal government in April. However all rich overseas residents now face a 10-year deadline after which their international belongings are liable to UK inheritance tax of as much as 40 per cent.
They’re amongst many on this group who’re leaving the UK, some alienated by fast modifications in a tax regime meant to lure them. “I seemed on the 10 causes I used to be given for coming and so they’d all modified, so I made a decision to go,” one studies having been instructed by one other. Departures embody Lakshmi Mittal, the metal billionaire, and Nassef Sawiris, Egypt’s richest man.
The total influence won’t be recognized for a 12 months or two, as tax returns reveal how lots of the 74,000 non-doms have left, and tax advisers and monetary foyer teams have cause to magnify. However there’s a rising danger of the Treasury not solely failing to realize an estimated £33.8bn in taxes over 5 years, however dropping revenues if greater than 1 / 4 of these affected depart.
It’s plain that UK chancellors have been lulled right into a false sense of safety by the truth that Osborne’s preliminary abolition of everlasting non-dom standing didn’t provoke a lot flight. Jeremy Hunt adopted in 2024 by limiting to 4 years the total fiscal advantage of overseas residency and Rachel Reeves added 10-year inheritance tax legal responsibility. Massive mistake.
The latter is scaring away many overseas residents whose estates could be decrease taxed elsewhere. Italy has attracted many former UK non-doms with a proposal of with the ability to shelter abroad belongings for 15 years in return for an annual fee of €200,000. It additionally has an inheritance tax charge beginning at solely 4 per cent of an property.
The 200-year-old non-dom regime was arbitrary and indefensible. However the fast transition to a regime that fails Reeves’ declare of being “internationally aggressive” has proved very unnerving. It does not likely assist that Nigel Farage, Reform’s chief, has promised a 10-year offshore tax shelter for a one-off fee of £250,000. Who might depend upon any of this?
Think about why the UK wants a particular regime for overseas residents. The US has international taxation for all, regardless of Donald Trump’s provide of a $5mn “Trump Card” path to citizenship. However US taxation is usually decrease (it has a a lot larger property tax threshold) and the financial alternative is larger. The UK should compete, together with others.
There’s a simple tax incentive to host rich foreigners: the UK acquired £6.2bn in taxes from non-doms within the 2022-23 tax 12 months, regardless of the very fact abroad revenue and belongings have been largely sheltered. By definition, they will decide the place to settle, whereas the UK is dependent upon its excessive earners, on condition that 29 per cent of all revenue tax is paid by the highest 1 per cent.
The UK additionally positive factors wider financial advantages from overseas expertise: the Wirths’ presence in London and Somerset has been important to the UK’s modern arts trade. This works at a much less seen degree: if a personal fairness fund tries to recruit a senior government to London, the latter will now suppose tougher about whether or not it’s price coming.
The UK has points of interest, in fact, from language to a secure authorized system and good faculties and universities. However different locations have made themselves extra alluring and it has been pushing its luck since Brexit. Reeves has been contemplating modifications amid intense fiscal stress as the size of flight by non-doms has emerged.
Labour ought to go additional. The four-year interval the UK presents for overseas residents to shelter abroad revenue and belongings from tax is intuitively too brief: it’s uncompetitive with different international locations and doesn’t give a household time to settle and put kids at school earlier than leaving once more. The purpose of a overseas resident scheme is to entice individuals not solely to come back however to stay.
I might lengthen it and make the provide less complicated, a top quality that’s now sorely missing. Enable overseas residents a decade of paying UK-based taxes for an annual payment of at the least £200,000 (not a Farage Card). Then make them combine absolutely, preserving solely offshore belongings in belief for inheritance tax functions. This may not please Labour MPs however it will profit the nation.
john.gapper@ft.com