By Sinead Cruise
If Labour wins the next week’s general election, private banks and advisors to Britain’s super-rich claim that some clients may leave the country and that plans to end offshore wealth tax protections that they want to go to future generations are on the verge of acquiescence.
Keir Starmer‘s Labour Party, which leads in the opinion polls and which published its statement on Thursday, is targeting Britain’s wealthiest people to support a common paying project focused on schools, security, electricity reform and the National Health Service.
Around 70, 000 people who reside in Britain but paid little or no English taxes on the money they make abroad were already facing higher bills as a result of the Liberal government’s announcement in March to phase out this “non-dom” status over time.
However, Labour claimed in April-published proposals that it would move more quickly to repeal comfort for foreign-earned income and grow Britain’s inheritance tax program to incorporate foreign assets held in trusts to reduce these levies.
The proposed changes, according to critics, could harm Britain’s tepid economy more severely than they can help, making it a less appealing place for the wealthy to live and invest in, and ultimately reducing overall taxes revenues rather than increasing them.
The Labour Party did not respond to a request for comment right away.
Regardless of whether the election results in a record-high or below, economists predict that total tax levels will be at an all-time higher despite promises from both major parties to lower major tax rates.
Working people wo n’t pay income taxes or receive social security benefits, according to Labour’s declaration. But it has pledged to narrow the gap between UK tax owed and tax collected, which widened by 5 billion pounds to 36 billion pounds ($ 46 billion ) in the 2021/22 tax year.
Although at least three of her largest clients, according to Catherine de Maid, partner at law firm Burges Salmon, were unwilling to pay higher taxes on their income and capital gains, the request for estate taxation was a “deal break” for them.
” The UK has a high inheritance tax rate of 40 %, and ( clients ) are not willing to pay this rate of tax on assets that were frequently acquired or earned for many years before they had any connection to the UK. They would prefer to keep totally”, she said.
Spain, Italy, Switzerland, Dubai and Singapore are proving common among rich UK families seeking a lower- income place to live, said Nigel Green, CEO of prosperity director DeVere Group.
There is no comparable inheritance tax in the United Arab Emirates, Singapore or most Swiss cantons, while Spain and Italy impose rates of 34 % and 8 % respectively, data from PWC shows.
Governments have historically not applied changes retroactively to existing structures when changing the inheritance tax treatment of trusts.
Law firms and advisors contend that Labour is unlikely to allow “grandfathering” of these schemes, citing remarks made by shadow finance minister Rachel Reeves in some media reports.
STAY OR GO
Under a Labour government, income tax changes could also cause thousands of roving international businesspeople and financiers who have established bases in the UK to spend less time there.
The way performance-related pay earned by private equity investors is governed by Labour’s commitment to reform the way capital gains taxes are calculated.
According to Mark Routen, Head of Tax at UK and Dubai-based wealth manager Hoxton Capital Management, most wealthy people were “internationally mobile,” and finding ways to remove UK tax residency was at the top of their list of plans.
According to Routen,” this is not as drastic as it sounds; as per the statutory residence test in the UK, it could just mean a small decrease in the number of days they can stay here, depending on how they are viewed as residents,” adding that” several” clients had or were considering making this decision.
Uncertainty was encouraging some to reduce exposure to the UK, according to Alexandra Hewazy, Head of Key Clients and Resident Non Dom Wealth Advisory at Barclays Private Bank.
She said,” This is n’t just their asset base; it could also be their physical presence and the intellectual capital that come with it.”
According to an analysis by Richard Murphy, political economist and professor of accounting at Sheffield University, charging capital gains tax at the same rate as income tax would raise 12 billion pounds a year, while value-added tax (VAT ) on financial services, which are primarily paid by the wealthy, could also raise about 9 billion pounds.
Can this industry and those who make the most money in it afford to pay more tax? Yes, more so than absolutely anybody else in society”, said Murphy, a former adviser to ex- Labour leader Jeremy Corbyn.
Most ultra-high net worth individuals were avoiding making important decisions, according to James Whittaker, head of UK wealth management and CEO of DB UK Bank.
” When switching from one country to another, there is a significant amount to weigh.” We continue to talk to people who want to relocate money here, especially those from the United States, but he added that they want to see thorough legislation first.
And some wealthy Britons welcome Labour’s proposed reforms.
The non-partisan network of wealthy people who support the super-rich should pay more tax, Patriotic Millionaires UK’s executive director Rebecca Gowland, told Reuters that some members have had, or are still have, non-dom status but are” categorical” in their support of plans to close the loopholes.
The majority of millionaires wo n’t be going anywhere, according to Gowland, though this may cause a small number of people to consider whether or not to leave.
($ 1 = 0.7827 pounds )
( Reporting by Sinead Cruise, Editing by Alexander Smith )
