When UK Chancellor Rachel Reeves unveils a crucial budget on Wednesday, a central question will be how much the flurry of millionaires departing for destinations including Dubai has cost the government.
More British citizens are leaving the UK than returning, and as many as 1,800 wealthy former non-domicile residents have left already. One in eight small to medium-sized business owners are planning to leave the UK or move their companies, polling this month by Rathbones, a wealth and asset manager, found.
Twenty six per cent said they would move next door to Ireland. The second-place destination was Dubai (21 per cent) followed by the US. The segment of wealthy people who have left the UK is still difficult to define – but their impact is significant.
tax expert
The top one per cent of earners in the UK contribute more than a quarter of tax revenue (28.2 per cent), according to a July report by the conservative think tank Onward. The threshold for being part of the one per cent has risen from £96,400 before tax in 1999, to £214,000 now.
The UK could lose 16,500 millionaires this year as they flock to more tax-friendly environments, according to the June Wealth Migration Report by advisory firm Henley & Partners. The steel billionaire Lakshmi Mittal and tech entrepreneur Herman Narula are the latest high-profile departures from the UK to the UAE because of rising taxes and uncertainty.
On Monday, Business Secretary Peter Kyle became the first leading Labour figure to acknowledge that wealthy people are leaving the UK as a trend. He urged the public not to “just focus on the billionaires” but to seek out explanations beyond taxes.
He blamed the lack of investment in start-ups and infrastructure for the departures and said the Labour government was working to fix that with more funding and global talent visas.
“I think it’s a worry [but] what I don’t want to do is, as a country, just focus just on the billionaires, because there are other people that have needed to leave. There are people starting businesses that have gone to America – actually in their droves – because they haven’t had the funding that they need in this country to succeed,” he said.
“And that is something that we are fundamentally stopping the need for by recapitalising the markets here and putting a lot of work in for those start-ups, those scale-up companies,” he said. He said more people would be coming to the UK since its latest investments in AI.
Shaky estimates
Tax experts, recruitment consultants and estate agents all report that a wave of professionals and entrepreneurs are upping sticks. Experts believe the effects of a slow trickle out, with fewer people coming into the UK, will leave the country in a “totally different landscape in 10 years' time”.
“You won’t see a sudden tabloid-style exodus of millionaires, it doesn’t work like that. Every year you’ll see slightly fewer come, every year you’ll see slightly more leave,” said Dan Neidle, a lawyer and founder of Tax Policy Associates, speaking at the Onward think tank last week. “It will be almost indiscernible in the statistics but it will be real, and in 10 years you’ll see a very different landscape,” he said.
Dubai ambition
Dubai has been closing in on London, according to the latest Global Financial Centres index. While the UK was ranked second with a rating of 765, Dubai is now in 11th place in the index, with its rating of 748 well above the average of 576.
Dubai is one of the destinations where wealthy people have migrated from London, while others are taking up golden visa schemes in France, Italy and Portugal. A major risk for London is overregulation of the UK’s financial sector.
“Here in London, we're having very little predictability. It’s flown back and forth now for over a decade on what we're going to do in that space, and the speed is certainly lacking,” said Prof Michael Mainelli of Z/Yen group. “Can you look at a regulator and pretty much know what they're going to say, because they ought to be making sensible decisions?”
Wealth creators
The cost estimates that do exist for wealth migration have so far focused on non-doms. The status was abolished in April this year, a move that followed Conservative governments' raids on the category.
Abolishing the non-dom tax regime could raise up to £9.2 billion in 2027-2028, according to the UK’s Office for Budget Responsibility. But there is “high uncertainty” around this as there is not enough data on how people will respond to the reforms, especially those who pull out of the UK altogether.
Should a quarter of former non-doms leave the UK, there will be no revenue bounce from the tax changes, according the Centre for Economics and Business Research. Rather, the UK could lose £900 million in revenue in the event that many former non-doms leave the UK by 2030, according to Oxford Economics.
The Adam Smith Institute has, in addition, estimated that if half of former non-doms leave the UK, the country will lose growth to GDP of up to £111 billion in 10 years, with 44,415 jobs lost by 2030. But the trend of shifting to low-tax countries is not limited to non-doms.
Wealth magnets
Alternatives are being proposed to attract wealth to the UK, while removing the perception of unfairness that the non-dom system engendered.
This includes a plan outlined by Onward which would have wealthy people make upfront investment of £3 million and yearly contributions of £300,000 for a 15-year exemption from foreign income, capital gains and global inheritance taxes. The group would not be given access to public services such as the NHS or state schools.
The proposal attempts to resolve the gaps that made non-dom status in the UK increasingly unpopular: though it encouraged wealthy people to live in the UK without being taxed on their business assets abroad, the group were seen as being given unfair tax privileges.
Bassim Haidar, a Nigerian-born Lebanese businessman and former non-dom to the UK, welcomed the proposal but said that high taxation and “uncertainty” around the UK government’s direction, including Ms Reeves’s autumn budget, were also an issue.
“Knowing you're going to pay high taxes, but not knowing what the next budget is going to call for, is a major problem,” he said. “For me to put [in] £3 million, I also need it to make business sense. There's got to be the environment. If I put £3 million, am I going to be taxed 45 per cent on that £3 million, for example?” he said.
Mr Haidar is a former donor to the Conservative party and now a major donor to Reform. The previous Conservative government set out to reform the non-dom system, but it was abolished by the Labour government.
Wealth taxes
Yet with quality of life worsening in the UK, “populist” wealth tax proposals are likely to gain ground as more young people struggle to buy homes. “You think that's bad. You ain't seen nothing yet,” said Mr Neidle.
While these are being proposed by the left-wing Green Party and former Labour leader Jeremy Corbyn’s new party, there are many within Labour who would welcome those taxes, Mr Neidle said.
“The government is so far holding the line against demands to wealth tax … I'd call them populist proposals from the left,” he said. “I suspect we'll see Reform becoming more populist on tax as well,” Mr Neidle added.
“It comes down to a lack of growth. And in particular to what's happened with property prices becoming essentially unaffordable for even quite wealthy young people. Until we really fix that, we're going to have a very dangerous disaffected group of young people,” he said. “We will see populist politics including tax measures which make the situation worse.”
