From experience advising high net worth individuals, the “exodus of wealth” is rarely a decision taken lightly, writes Yorke Eaton
Much has been reported about the departure of wealthy individuals from the UK and the impact this will have on tax revenues. A recent analysis suggested that ultra-high net worth residents collectively worth £121bn have either left or loosened their ties to the UK in recent years. Tax changes and uncertainty about what’s to come have often been cited as factors behind the trend.
From experience advising high net worth individuals, the “exodus of wealth” is rarely a decision taken lightly. For anyone seriously entertaining the idea, the process tends to begin months, or even years, before anyone boards a plane. And, contrary to popular opinion, it is not always the tax they face today that leads wealthy families to relocate overseas; it also tends to be the uncertainty over what their bill will be in the future.
The benefit of affluent individuals and families to the UK isn’t just the tax they pay. It is the money they spend and invest here, the people they employ and the knock-on benefits for tax revenues and consumer spending.
So, how do we retain high net worth individuals? The government needs to understand what might prompt UK residents to consider becoming non-resident and provide a compelling answer to why they should remain.
The UK has an enormous amount going for it and many wealthy families want to live here for personal, family and business reasons. The opportunity is to provide sufficient stability and certainty for them to make long-term decisions here with confidence.
HNWIs are looking for certainty
In its submission ahead of the Autumn Budget, TheCityUK makes a compelling case for a tax roadmap and simplification of the regime to support growth and competitiveness.
The government may also wish to review its recent changes to Business and Agricultural Relief for inheritance tax purposes, with a view to a system that better targets the behaviours the changes were designed to address, while allowing genuine business owners to invest knowing that the business can continue after their death. Various credible alternatives have been discussed within the tax industry.
The UK is currently one of the only major European countries without a favourable regime to encourage the internationally mobile affluent to make the UK home.
The UK could look to schemes such as those Greece and Italy have put in place to attract internationally mobile affluent people to invest in the UK and make it their home. Leaders in the tax field have already worked on a suitable Investor Visa structure and recent reports suggest this is something the government is now considering. Where people choose to live depends heavily on their circumstances. Age, family make-up and what people want for their children all play a part. For some, this is about their own residence in the relatively near term. For others, the concern is much further ahead: ensuring what they have spent years building can continue to provide for future generations.
There is no room for complacency. Traditionally, children’s schooling has been one of the barriers to wealthy families leaving the UK. Yet this is being made easier by the growing number of prestigious UK school brands opening in favourable tax jurisdictions.
Becoming non-resident is a major personal and financial decision, and many won’t leave even if there is a significant financial advantage in doing so.
The challenge for the Treasury is to understand what influences these decisions and what can be done to encourage wealth to remain in the UK. The numbers tell us what has already happened; announcements in the Budget and conversations in the coming months will determine what comes next.
Yorke Eaton is head of private wealth at Addleshaw Goddard