Private banks and advisers to Britain's wealthiest individuals warn that some clients might leave the country if Labour wins the upcoming general election and
implements plans to abolish tax protections on offshore wealth intended for future generations.
Keir Starmer's Labour Party, leading in the polls and having recently published its manifesto, aims to target the wealthiest Britons to support increased public spending on schools, welfare, energy reform, and the National Health Service.
Approximately 70,000 residents of Britain who pay little or no UK tax on overseas earnings were already facing higher tax bills after the current Conservative government announced plans in March to phase out "non-dom" status. Labour, however, proposes to expedite the removal of relief on foreign-earned income and expand the inheritance tax regime to include foreign assets in trusts designed to minimize such levies.
Critics argue that these changes could harm Britain's economy by making it less attractive for the wealthy to live and invest in the country, potentially reducing overall tax revenues.
Labour has not yet responded to requests for comment. Economists note that overall tax levels are likely to reach record highs regardless of the election outcome, despite promises from both major parties not to increase significant tax rates.
Labour has pledged not to raise income tax or National Insurance contributions for working individuals but aims to close the gap between owed and collected UK taxes, which widened by £5 billion to £36 billion ($46 billion) in the 2021/22 tax year.
Catherine de Maid, a partner at law firm Burges Salmon, stated that while some of her affluent clients are prepared to pay higher taxes on earnings and capital gains, the proposed inheritance tax changes are a "deal breaker" for at least three clients.
"Inheritance tax in the UK is high at 40%, and clients are unwilling to pay this rate on assets often acquired long before any UK connection. They prefer to leave altogether," she said.
Countries like Spain, Italy, Switzerland, Dubai, and Singapore are becoming popular among wealthy UK families seeking lower tax environments, noted Nigel Green, CEO of wealth adviser DeVere Group. These locations either have no comparable inheritance tax or significantly lower rates than the UK.
Typically, governments do not apply inheritance tax changes to existing trust structures retroactively. However, law firms and advisers believe Labour is unlikely to allow "grandfathering" of such schemes, based on comments attributed to shadow finance minister Rachel Reeves.
Changes to income tax under a Labour government might also lead many international entrepreneurs and financiers in Britain to spend less time in the country. Labour plans to tax performance-related pay earned by private equity investors as capital gains.
Most wealthy individuals are "internationally mobile" and are considering ways to reduce UK tax residency, said Mark Routen, Head of Tax at Hoxton Capital Management. He added that "several" clients were contemplating this move.
Uncertainty is prompting some to decrease their UK presence and asset exposure, stated Alexandra Hewazy, Head of Key Clients and Resident Non-Dom Wealth Advisory at Barclays Private Bank.
Charging capital gains tax at the same rate as income tax could generate £12 billion annually, while value-added tax (VAT) on financial services could raise around £9 billion, according to analysis by political economist Richard Murphy.
"Can this sector and those who earn most in it afford to pay more tax? Yes, more so than anybody else in society," said Murphy, a former adviser to ex-Labour leader Jeremy Corbyn.
James Whittaker, head of UK wealth management and CEO of DB UK Bank, said most ultra-high-net-worth individuals are waiting for detailed legislation before making significant decisions. Photo by Rwendland, Wikimedia commons.