Britain’s Wealthy are packing Parachutes and that spells trouble for the rest of the UK!
The Times recently ran a feature noting that a large number of the UK’s wealthiest individuals have fled for more favourable fiscal climates. It also noted that this trend has accelerated significantly since Brexit began dominating the news. Whether or not these individuals were paying their “Fair Share”, there is no question that once gone, they will not be paying any tax at all to the UK in the future.
What is also not in dispute is the fact that the UK Treasury currently relies on the top one percent of taxpayers for a quarter of its annual personal tax total. As a result, the loss of even a single one of these super tax contributors (in total annual tax paid individually) will have an enormous asymmetric negative impact on tax revenue. In turn this means fewer pounds available to spend on entitlement programs and government initiatives.
So what is motivating this exodus? What should those contemplating a similar departure be doing?
For the UK’s wealthiest people, the chaos of Brexit brings with it an even scarier prospect than a “hard exit.” Namely the possibility that Labour will win a general election and its leader, Jeremy Corbyn will be installed in Downing Street.
The palpable fear results directly from the words of the man himself. “The very richest in our society, Mr. Corbyn warned in September 2018, “have had tax breaks, giveaways, and tax havens. I tell you what, they’re on borrowed time.”
Since that speech, two of the UK’s wealthiest high profile native businessmen, Jim Ratcliffe and James Dyson, have taken steps to shelter themselves in case Mr. Corbyn puts such words into legislation. While the loss of these and other “native” businesspeople like Richard Branson makes headlines, it is the quiet loss (or slowing influx) of foreigners making the UK their tax residence which may prove to be even more financially devastating.
As it relates to Non-Domiciled Remittance Taxpayers (aka “Non-Doms”), Mr. Corbyn’s disdain is well known. If in power, Mr. Corbyn’s likely changes could mean the increased rate and application of the non-dom tax charge from the first versus the current eighth year. It could also mean the abolishment of the entire remittance tax regime.
Adding to the distinct possibility of adverse tax changes is uncertainty regarding wealthy individuals’ UK immigration status. For those “Non-Doms” who are EU nationals, their future status will depend ultimately on the terms of Brexit.
Non-EU nationals “Non-Doms” who had obtained “Leave to Remain” in the UK under the Tier 1 Category, received a cold dose of reality in 2018. One of the highest profile and well established members of their group, Roman Abramovich, suddenly withdrew his UK renewal application after long delays in processing.
Wisely he had already established a BackUp Plan of citizenship in Israel and the use of their attractive 10 year tax holiday. Recently, new changes to the immigration rules have given a glimpse into the UK Government’s attitude toward this target group.
The clear and present danger is the ongoing chaos surrounding Brexit and the very real threat of a non-confidence vote that could trigger a general election and potentially bring in a Labour majority government. In response, UK based wealthy individuals are scrambling to design and implement Back-Up Plans that will be flexible enough to deal with the fluid tax and immigration situation. They understand that “Failure to Plan is Planning to Fail.”
Native and Non-Dom Wealthy UK Residents know that they have anywhere from Halloween until possibly two years before Brexit either kicks in, there is a second referendum or there is a general election which begins the path toward Labour’s new tax policies being implemented.
While speed is impacting the development of an effective Back-Up Plan, it is important for success to keep some key principles in mind during the planning and execution stages
- 1) What are the specific essential business and lifestyle needs (e.g. educational/medical facilities, transportation hub etc.) of the family?
- 2) What are the preferences (e.g. language) of the family?
- 3) What location will make a suitable new “Tax Home”, should the UK rules dramatically increase the family’s tax burden?
- 4) What immigration issues arise on relocating to this new Tax Home from the UK?
- 5) What other changes need to be made to properly sever future UK tax obligations?
- 6) What UK immigration issues arise for non-UK nationals remaining in the UK post Brexit?
In answering these question consideration must be made of both living (income, capital gains) and death tax issues. A proper examination of family history should be undertaken to see if there are any citizenship and/or residence opportunities to acquire status in the new Tax Home through lineage or religion. In addition, there should be an exploration of the ability to leverage business activity, investment, or property ownership to secure the required citizenship/residence. Furthermore, an effective and legal strategy must be devised and executed to cleanly depart the UK tax obligations. Finally, this departure strategy must also anticipate entry into the new Tax Home, so as to not jump out of the UK tax pot and into another jurisdiction’s fire.
Whether Remainder or Leaver, even the most optimistic amongst the UK’s Wealthy recognize that now is the clearly the time to set up and be able to execute a viable BackUp Plan. While time is at a premium, attention to detail will make all the difference in devising and creating a successful strategy. Ultimately it will be politicians and the voters who put them in office which will determine whether the wave of departures becomes a tsunami.