UK tax changes threaten wealth migration

In recent discussions on tax reforms, the proposed removal of the non-domiciled (non-dom) status in the UK is generating considerable concern. Experts, including Mark Clubb of TEAM, caution that eliminating this status could create severe financial and economic consequences. The non-dom status has been instrumental in allowing foreign nationals to live and work in the UK while only paying inheritance tax in their home country. This approach has attracted affluent professionals and facilitated London’s rise as a global financial hub. However, if non-dom status is abolished, there is a real risk that high-net-worth individuals could leave the UK, potentially reducing tax revenue.

The potential removal of business property relief (BPR) is also troubling. Historically, BPR has been key to inheritance planning, particularly for family-owned businesses and farms. If BPR is abolished, transferring assets like family farms or privately-owned companies to the next generation could incur significant tax burdens, potentially harming the mid-sized business sector and agricultural economy. Without these reliefs, business owners nearing retirement may opt to relocate, further fuelling wealth migration out of the UK.

Navigating these changes is complex, especially for those considering relocating. UK-domiciled individuals are currently subject to UK inheritance tax and capital gains tax on their worldwide assets, regardless of where they reside. Changing domicile to avoid these taxes involves cutting all UK ties, including business interests, property ownership, and even burial arrangements.

For those looking to relocate, advice can be inconsistent. Some advisers recommend popular destinations like Portugal, Greece, or Malta, which offer attractive tax benefits, but the laws and tax regimes can shift unexpectedly with changing governments. For instance, Portugal recently considered phasing out its NHR (Non-Habitual Residence) status, creating uncertainty for new residents. Changes in tax policies are not easily predictable, adding to the complexities for expatriates planning for the future.

A recent proposal suggests that the UK government may be considering moving to a residence-based inheritance tax (IHT) system, potentially extending UK inheritance tax on global assets for up to ten years after individuals relocate. Such a shift could provide expatriates with a timeline after which their non-UK assets might be exempt from UK inheritance tax, offering potential relief.

This complex and evolving tax environment highlights the importance of professional advice. Robo-advice is insufficient due to the personalised nature of these financial decisions and the unpredictable stance of HMRC on tax matters. TEAM, specialising in expatriate advisory services, anticipates further shifts in tax regulations as Western governments face increasing budget pressures and may increasingly look to tax wealthier citizens. With options for residency by investment in over 60% of European countries, individuals must carefully weigh their options to avoid inadvertent tax liabilities in their transition.

With these significant changes on the horizon, individuals with wealth in the UK must consider professional advice for comprehensive tax planning. Whether relocating or re-evaluating assets, it’s essential to avoid falling afoul of evolving tax policies and ensure long-term financial stability.

TEAM plc (LON:TEAM) is building a new wealth, asset management and complementary financial services group. With a focus on the UK, Crown Dependencies and International Finance Centres, the strategy is to build local businesses of scale around TEAM’s core skill of providing investment management services.

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