Are UK tax policies forcing the rich out?

Harriet Agnew – George Parker

Last April, Hungarian investor Gabor Foto participated in an event hosted by a private bank in London, which revolved around ending the British tax system known as the “non-resident system.” The event included an elite of about 50 wealthy foreigners, united by a common concern about tax changes.

“There was discussion about their potential migration destinations, how their assets would be transferred, and what would happen to the trusts,” said Foto, co-founder of real estate development group Futural Group.

The previous month, Jeremy Hunt, then the Conservative chancellor, had tried to embarrass Labor when he unexpectedly pledged to abolish Britain’s non-resident tax system, which allows wealthy foreigners to avoid paying British taxes on income from abroad.

However, Hunt made some concessions, which Rachel Reeves, the opposition leader at the time, promised to end soon. Most importantly, Labor has pledged to end the use of offshore trusts to evade inheritance tax, which is levied at a record rate of 40% in the UK.

Foto conducted an informal survey of those in attendance, most of whom were entrepreneurs and investors who benefit from the “non-resident” system. He asked them whether they would be willing to pay an annual fee, say £500,000, to remain in the UK and take advantage of the benefits of the tax system. “Everyone raised their hands,” Votto said.

When Foto faced the prospect of personal taxation or the unwanted option of leaving the country, he realized there was an opportunity to modernize the tax system for foreigners, allowing the UK to rival the benefits offered by countries such as Italy, Switzerland and the UAE to attract high-income earners.

Foto is one of the main champions in a group of entrepreneurs, investors and advisers trying to formulate the biggest reform of Britain’s tax system for wealthy foreigners since its creation in 1799, to protect those with foreign property from wartime taxation.

Building on previous work by a group of law firms including Withers, Charles Russell Speechless and Taylor Wessing, the campaign has crystallized into Foreign Investors for Britain, a lobby group set up after the general election in July. While most of the country faces tax rises in the next budget, and has neither the means nor the connections to pressure the government, Foreign Investors for Britain has received seed funding of £300,000 from its founding members, according to a person familiar with the situation.

Its main demand is for the government to establish a graduated tax system that exempts non-residents from inheritance tax on non-UK assets and British duties on foreign income, gains and some investments in the UK for up to 15 years.

They will pay annual fees for this, ranging from £200,000 on a net worth of up to £100m, to £2m on a net worth of more than £500m, similar to similar systems in the likes of Italy and Switzerland.

Alex Algard, a founding member of Foreign Investors for Britain, who moved to London from Seattle eight years ago to open the international headquarters of his software company Haya, said: “We support Labor in abolishing the outdated non-resident tax system.” .

He added: “But we want to mitigate the impact on this group that is important for tax revenues in the United Kingdom, as they have a high ability to move, and their loss will be costly to the British economy.”

Earlier this summer, the group Foreign Investors for Britain commissioned consultancy Oxford Economics to prepare a report on the proposed reforms, which the company worked over the summer to complete. It also launched a website and distributed an online questionnaire to a network of non-residents and their advisors to determine the impact of the changes.

When the first phase of the report was released in September, it contradicted the Academy’s figures and those of the UK’s Office for Budget Responsibility. Instead of increasing tax revenues, the report estimated that the proposed reforms could cost the Treasury £0.9 billion in 2029-30. It also showed that 83% of the 73 non-residents surveyed considered inheritance tax on global assets a major driver of their decisions.

Lesley MacLeod-Miller, chief executive of Foreign Investors for Britain, met officials from the Treasury and HMRC in early September to present the findings. However, the group has not reached out directly to the Office for Budget Responsibility, according to a person familiar with the situation.

By late September, Rachel Reeves had received warnings from Treasury officials that some parts of her plan, particularly an inheritance tax on the global assets of UK residents who declare their primary residence abroad, could result in financial losses by paying out a significant number of taxpayers. Rich people have to leave the country.

Facing a £40bn funding gap, the government has indicated that Reeves is likely to roll back the inheritance tax part of her plan, although it still expects to raise tax revenues on non-residents.

“We need to close a huge fiscal gap, but we will not make tax changes unless they are practical and bring in revenue,” said one Reeves ally.

A government source confirmed that lobbying efforts undertaken by the Foreign Investors for Britain group had not been “particularly effective.”

The second part of the Oxford Economics report, published last week, showed that 95 non-residents who responded to the questionnaire paid an average of £800,000 in UK VAT during the 2023-2024 tax year, and an average of £890,000 in stamp duty during the 2023-2024 tax year. The past five years. Wealthier non-residents pay much larger amounts of these taxes.

Respondents indicated that they were significantly disposing of UK assets and stopping investment and philanthropy due to fear of rising taxes.

The Foreign Investors for Britain group is expected to hold a call with Varun Chandra, Sir Keir Starmer’s trade advisor, this week, and will update the Treasury on any additional data and research.

This week, Oxford Economics plans to publish the third part of its research, which will address the potential fiscal impact of a graduated tax system. In a separate report issued last week by the Adam Smith Institute, which advocates the free market, it recommended introducing an annual fixed fee of 150,000 pounds sterling for non-residents, valid for 15 years.

The report said that these fees could generate at least £12.45 billion annually in direct revenue.

“This doesn’t just affect the wealthy,” McLeod-Miller said. “This money will go to basic services like schools and hospitals.”

Lawrence, from the office of Charles Russell Speechleys, said: The best thing the government can do on Budget Day is to say something that enhances people’s confidence and limits the migration of the wealthy.

He added: “But they do not have the data necessary to make a final decision about the graduated tax system… and they have not had enough time to think about it yet.”