Sinead Cruz
LONDON (Reuters) – Private banks and advisers to Britain’s super-wealthy say some clients could leave the country if the Labor Party wins next month’s general election and goes ahead with plans to scrap tax protections for offshore wealth they wanted to pass on to future generations.
Keir Starmer’s Labor Party, which is leading in opinion polls and published its manifesto on Thursday, is targeting Britain’s richest people to support a public spending program focused on schools, welfare, energy reform and the National Health Service.
Around 70,000 people who live in the UK but pay little or no UK tax on the money they earn abroad are already facing higher bills after the current Conservative government said in March it would phase out over time this “non-resident” status.
But in proposals published in April, Labor said it would move faster to phase out relief on foreign-earned income and expand Britain’s inheritance tax regime to include foreign assets held in trusts designed to mitigate such charges.
Critics say the proposed changes could do more harm than good to Britain’s sluggish economy, making the country a less attractive place for the world’s rich to live and invest, reducing overall tax revenue rather than increasing it.
The Labor Party did not immediately respond to requests for comment.
Economists say overall tax levels are likely to approach a record high no matter who wins the election, despite pledges from both major parties not to raise key tax rates.
The Labor Party has said it will not increase income tax or National Insurance contributions for workers. But it has pledged to reduce the gap between taxes owed and collected in Britain, which has widened by 5 billion pounds to 36 billion pounds ($46 billion) in the 2021/22 tax year.
Catherine de Maide, a partner at law firm Burges Salmon, said her biggest clients were prepared to pay higher income and capital gains tax but the inheritance duty proposal was a “deal breaker” for at least three of them.
“Inheritance tax in the UK is high at 40% and (clients) are unwilling to pay this rate of tax on assets that were often acquired or earned many years before they had any connection with the UK. They would prefer to leave altogether. ,” She said.
Spain, Italy, Switzerland, Dubai and Singapore are popular among wealthy British families looking for places to live with lower taxes, said Nigel Green, chief executive of wealth adviser DeVere Group.
The United Arab Emirates, Singapore and most Swiss cantons have no comparable inheritance tax, while Spain and Italy have rates of 34% and 8% respectively, according to PWC.
Traditionally, governments changing the inheritance tax treatment of trusts have not applied the changes retroactively to existing structures.
But law firms and consultants say Labor is unlikely to allow such schemes to be “grandfathered”, citing comments attributed to shadow finance secretary Rachel Reeves in some media reports.
STAY OR LEAVE
Income tax changes under a Labor government could also encourage thousands of itinerant international entrepreneurs and financiers based in Britain to spend less time in the country.
The Labor Party has promised to reform how performance-based wages received by private investors are taxed as capital gains.
Most wealthy people were “internationally mobile” and developing ways to avoid UK tax residency was high on their list of plans, according to Mark Ruthen, head of UK tax at Dubai-based asset manager Hoxton Capital Management.
“This is not as drastic as it sounds as, under the statutory UK residence test, it may only mean a slight reduction in the number of days they can stay here, depending on the basis on which they are considered resident.” Ruten said, adding. that “several” clients had already planned or planned to take this step.
Alexandra Hevasi, head of key client and out-of-home advisory at Barclays Private Bank, said the uncertainty was prompting some to reduce UK exposure.
“It’s not just their assets, but also their physical presence and the intellectual capital that goes with it,” she said.
Charging capital gains tax at the same rate as income tax would raise £12 billion a year, while value added tax (VAT) on financial services, which are mainly consumed by the wealthy, could also raise about £9 billion, Richard’s analysis. Murphy, a political economist and professor of accounting at the University of Sheffield, shows.
“Can this sector and those who earn the most in it afford to pay more taxes? Yes, more than anyone else in society,” said Murphy, a former adviser to former Labor leader Jeremy Corbyn.
James Whittaker, head of UK wealth management and chief executive of DB UK Bank, said most HNWIs held back before making big decisions.
“When moving from one jurisdiction to another, there is a lot to weigh. We continue to talk to people who want to move wealth here, especially from the United States, but they want to see detailed legislation first,” he added.
And some wealthy Britons welcome Labour’s proposed reforms.
Rebecca Gowland, chief executive of Patriotic Millionaires UK, a non-partisan network of wealthy people who believe the super-rich should pay more tax, told Reuters that some members had or still have non-resident status, but they were “categorical” in their statements. their support for plans to close loopholes.
“While this may lead a small number of people to consider whether they want to leave, the vast majority of millionaires will not leave,” Gowland said.
($1 = 0.7827 pounds)