With the UK mulling new wealth taxes, non-domiciled residents might leave in droves
The Treasury estimates that there have been as many as 74,000 ‘non-doms’ in 2023, who collectively contribute about £8.9 billion in tax revenue
[LONDON] When the UK’s Chancellor of the Exchequer Rachel Reeves delivers her government’s first budget at the end of October, she could potentially introduce more than £20 billion (S$34.2 billion) of tax hikes, including some that are targeted at the super-rich.
Reeves previously said in July that she found a gaping £22 billion hole in the UK’s public finances, warning that the upcoming budget would be a “painful” one due to the poor state of the fiscal situation that the Labour party inherited from the departing Conservatives.
With Prime Minister Keir Starmer looking for new and different sources of revenue to plug the hole, there are some concerns among the UK’s ultra high-net-worth individuals that steep wealth taxes are in the pipeline.
As things stand, the potential targets could include wealthy families who are not taxed on their assets outside the UK. Taxation on capital gains on stocks and property, as well as on higher inheritance and pensions are the other options being explored.
The government is targeting the rich as it has promised to avoid taxing the poor. The UK’s sales tax, known as the value-added tax, is expected to remain unchanged at the coming October budget.
Among the most vocal advocates for a wealth tax is Sharon Graham, the leader of the civil servants union Unite.
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“If we placed a tax on the assets of the wealthiest people, the so-called black hole would be gone,” she said. “It’s time for a wealth tax on the super-rich and a tax on excess profits. We don’t need more excuses about fiscal responsibility or talk of wealth creation.”
Possible exodus
Recently, about a thousand of Britain’s richest people and their advisers gathered for a meeting in an area in London that overlooks the Treasury.
Officials at the Treasury were warned that many of these wealthy individuals were considering moving themselves and their assets to more “tax-friendly” cities such as Dubai and Singapore.
The participants at the meeting were UK residents, but were classified as non-domiciled for tax purposes.
These “non-doms”, as they are commonly referred to, are at a huge advantage for they are taxed only on earnings and investment income within the UK. Their income on foreign property and other overseas assets are free of UK tax.
The Treasury estimated that there were as many as 74,000 non-doms in 2023. Collectively, they contributed about £8.9 billion in tax revenue that year, said Leslie MacLeod-Miller, chief executive of Foreign Investors for Britain and the organiser of the meeting.
To back his point that non-doms might leave the UK should they be slapped with higher taxes, MacLeod-Miller commissioned a survey and analysis from Oxford Economics, with the firm polling 72 non-doms and more than 50 tax advisers.
The results found that about two-thirds of non-doms might leave the UK if the government introduces an inheritance tax on their worldwide assets.
“It’s crucial that the Treasury proceeds with caution, and should consult with business and investment partners,” MacLeod-Miller said. “If mishandled, the (non-dom) changes could severely undermine the UK’s ability to attract and retain global talent and investment.”
A Treasury official said that the government was “committed to addressing unfairness” in the tax system and that was why it was removing the “outdated” non-dom tax regime. He added that a fair and competitive tax regime would continue to attract talent and international investment into the UK.
Meanwhile, investment bankers in London are worried that the government will introduce a punitive capital gains tax. They warned that a sizeable increase from the current 20 per cent would “punish risk takers and wealth creators”.
The Inland Revenue estimated that some 369,000 people paid capital gains tax which amounted to £14.4 billion in 2023.
The independent Institute for Fiscal Studies (IFS) estimated that if capital gains tax rises to the top income tax levels of 45 per cent, the government could raise a further £16.7 billion. Several economists disagreed with the estimate, however, as holders of shares and property may delay sales to avoid paying the tax.
“If you had a very broad wealth tax that included housing and pensions, many people would see their taxes go up,” said Helen Miller, deputy director at the IFS. “But if you exclude these and only tax them on their other assets, then the revenues would be much smaller.”
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