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May 26, 2023

The UK has scared off the rich and it needs them back

Tier 1 investor visas are gone and Labour is threatening non-dom status; both leave the UK with a wealth migration crisis

By Arabella Murphy

Wealthy families looking for a new country to call home, or set up a family office, face a monumental decision.

Contrary to popular belief – which imagines a globe-trotting elite of tax avoiders – the wealthy are like many other families in that they often need to move abroad for work or business, may choose to emigrate for their children’s education, or may reluctantly leave their home country if the political regime is unfriendly.

The difference comes with the numbers involved. Few would choose a country which levies high taxes on all their worldwide income if there are lower-tax alternatives. But it’s not all about the tax, or they would all be living in the Caribbean.

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When looking for a new home, we all want a congenial place to live, in a stable political environment with good education, transport and healthcare. To get that, we don’t mind paying taxes.

Many governments recognise this, and seek a balanced approach to tax to attract the wealthy – enough that they contribute more than merely their spending power to the economy, but not so high as to be uncompetitive. It’s often time limited, so they get a ‘teaser rate’ of tax for a few years, but longer-term residents are taxed the same as other citizens.

The UK ‘non dom’ tax model taxes domestic (UK) income and gains in the normal way, but exempts foreign income and gains left abroad, for at least six and up to 15 years. This has its flaws – after all, the message it sends is ‘come and live here, but don’t bring your money’ – but similar forms have been adopted by other countries seeking to attract wealthy residents.

[See also: Cash-rich family offices looking to deploy capital, says Goldman Sachs]

Prime Minister Rishi Sunak has faced criticism over his wife Akshata Murty's previous non-dom status
Prime Minister Rishi Sunak has faced criticism over his wealthy wife Akshata Murty’s previous non-dom status in the UK / Image: Getty

Replacing the Tier 1 Investor visa

Before wealthy migrants can take advantage of a tax system, they have to have the right to live in that country – a visa. And that’s where the UK is currently falling behind.

The Investor Visa programme (invest £2-£10 million in exchange for the right to live in the country and work towards citizenship) was suspended in early 2022 due to the Russian invasion of Ukraine, but hasn’t been replaced.

It’s politically tricky in difficult economic times to create a new visa programme for wealthy people who pay less tax than others. But without a new system, the only rich people able to move to the UK are those who are an employee with a job offer from a UK business, a student, or have family here.

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There are almost no legal routes to become a UK resident. You can visit for up to 90 days, but you’ll have to live, spend and be taxed elsewhere.

What do other countries do?

A number of countries have ‘golden visa’ programmes (investor visas) linked to their special tax regimes, like the UK model. Some, like Switzerland, require individually-negotiated access to their fixed-tax system, while Italy has a hybrid regime (part Swiss fixed tax, part UK non-dom regime).

From Australia to Canada, Greece and Spain, investment is a normal means of entry, and a local tax contribution is required while overseas income is taxed at low rates (or not at all).

Other packages include Spain’s famed ‘David Beckham law’, which requires migrants to work in Spain (and have substantial income) but halves tax for six years.

And 21st century families often have a global lifestyle – Portugal’s ‘digital nomad’ visa may be the first designed for those who live there but work for a foreign business, taxing them for up to 10 years as a non-dom.

Tier 1 investor visas: Malaga in Spain
Spain requires wealthy migrants to work in the country but halves tax for six years / Image: Getty

[See also: The super-rich shrink: global ultra-wealthy population drops 4 per cent]

The UK’s non-dom regime has long been a political hot potato and the Labour Party is once again pledging to abolish it. But that’s not much of a gesture if non-doms can’t even come to the country anyway.

It’s not clear that any political party currently has a strategy for wealthy migrants, but if they do, it needs to work. Instead of slicing the economic pie into ever-diminishing pieces, attracting high-net-worth residents (at an acceptable cost) is one way to grow the size of the pie.

If there are no equivalents to the tier 1 investor visa, the only arrivals will be workers, students and dependent relatives. If new visas mean the UK is open to all, but without a balanced tax offer, the wealthy still won’t come.

As Winston Churchill once observed, ‘However beautiful the strategy, you should occasionally look at the results’.

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