UK’s tax on the superrich sparks wealthy exodus and fiscal uncertainty

UK’s tax on the superrich sparks wealthy exodus

The UK is attempting to tax the superrich. This British initiative highlights the complex politics surrounding taxation of the wealthy. On one side, taxing high earners is championed by the left as a way to address income inequality and weakened social safety nets.

On the other, low-tax proponents argue that such taxes can be harmful, causing wealthy individuals to leave and reducing investment, according to a WSJ report. The effort has faced challenges.

With high public debt and aging infrastructure, the UK aimed to generate about $45 billion by 2030 through eliminating non-dom status.

Countries such as Dubai, Italy, and Monaco either have no taxes or maintain systems similar to the UK’s former non-dom status.

Unlike the US, which taxes its citizens regardless of where they reside, the U.K., like most countries, taxes individuals based on their residence, applying taxes on their worldwide income.

Wealthy Britons have been trying to escape the U.K.’s high tax rates for decades. In the 1970s, the Rolling Stones moved to France to avoid taxes, while David Bowie went to Switzerland.

The lucrative non-dom loophole had the opposite effect, drawing rich foreigners to London. The system dates back to 1799, when the country’s first income tax was imposed to fund the war against Napoleon.

Only income earned in the U.K. was subject to the tax, allowing investments in the empire’s colonies to avoid taxation. The exemption was restricted over time to largely benefit foreigners who don’t expect to live in the U.K. permanently.

Rich people leaving UK? 

Instead of contributing, many wealthy expatriates are departing, raising doubts about the tax’s effectiveness, cites WSJ report.

A Nigerian-born Lebanese businessman, Bassim Haidar, who moved here in 2010 said “I’m on my way out."

“There comes a time when you don’t feel welcome anymore, and it’s time to just start packing and leaving."

He is one of the 74,000 people who took advantage of a centuries-old tax loophole that catered to the global wealthy, which was ended in April. The non-dom status allowed foreigners living in the UK to pay taxes only on income earned within the country. Any money made outside the U.K. was not taxed unless it was brought into the country.

Nassef Sawiris, an Egyptian billionaire and co-owner of the English soccer team Aston Villa, has relocated from the U.K. to Italy, according to regulatory filings.

German crypto billionaire Christian Angermayer moved to Switzerland last year from London. The U.K. has introduced a new tax benefit for foreign income, but it is limited to four years and many former non-doms don’t qualify.

Wealthy migration patterns shift

In the 1970s, wealthy individuals from the Middle East, benefiting from oil and shipping, began buying mansions, hotels, and department stores in London WSJ report cites.

This was followed in the 1990s by a wave of Russian oligarchs, leading to London being nicknamed Londongrad. More recently, Chinese and Indian nationals have become increasingly influential.

The U.K. anticipated that some wealthy residents would leave due to the tax changes and factored this into its projections. The Office for Budget Responsibility, the independent budget watchdog, estimated that about 12% of a significant group of non-doms would relocate.

However, it cautioned this month that the number of departures could be higher, highlighting that the U.K.’s “growing reliance on this small and mobile group of taxpayers therefore represents a fiscal risk.”

Groups advocating for lower taxes offer a more pessimistic view. A report by the Centre for Economics and Business Research, commissioned by the Land of Opportunity campaign, predicted a higher exit rate among non-doms and warned that the government could lose revenue if the migration rate exceeds 25%.

Academic research on tax systems in the U.K., Switzerland, and the U.S. reveals a split among the wealthy: the super-rich and elderly are more likely to relocate if faced with higher tax or estate costs, while families with school-age children and those employed in salaried professions, such as lawyers, are less inclined to move.