On November 18, UK Chancellor Jeremy Hunt went big, abolishing capital gains tax altogether. He is already set to phase out the controversial ‘non-dom’ status, and that economic departure awaits implementation in April 2025. Economic analysts and political observers alike are scratching their heads—and in some cases, deeply alarmed—by this choice. In the past, the ‘non-dom’ status has allowed rich people in the U.K. to only pay tax on their U.K. income, freeing them from paying taxes on their global earnings. The move comes at a time when the U.K. is seeing a notable exodus of millionaires, intensifying debates about the impact on local economies and the Labour Party’s future.
The so-called ‘non-dom’ status, which allows the rich to legally avoid paying tax in the UK, has been controversial for years. Critics argue it perpetuates inequality and undermines the tax base, while proponents claim it attracts wealthy individuals who contribute to the economy. Hunt would like to see the current system scrapped in favor of a “simpler, residency-based system.” He argues this amendment could raise an additional £2.7 billion a year for the public purse.
Yet, as these changes approach, many prominent figures have preemptively decided to depart the U.K. Among them is the vice chairman of Goldman Sachs, Richard Gnodde, who was born in South Africa. Famed Egypt businessman Nassef Sawiris, Egypt’s wealthiest man, has departed for nations with better tax structures. He is co-owner of Aston Villa FC. Norwegian shipping magnate John Fredriksen is just as much one of them, looking for tax-friendlier pastures.
Furor over this trend gives the Labour Party a galvanizing issue. It creates a lot of uncertainty for those sectors that benefit from the spending power of former non-doms. This is a huge boost to many sectors including retail, hospitality, legal services and luxury goods. They all depend on having rich people around. Their support is essential as thousands of jobs count on it. Londongrad Aston Chase, the elite estate agency based in London, estimates that 150,000 Russians currently inhabit ‘Londongrad.’ They are the owners of about £1.1 billion ($1.5 billion) in residential assets. The new market stats released by LonRes indicate that prime home sales have plummeted. In May, these transactions were down 36% year-over-year.
Hunt has been making the case that his reforms will create a fairer tax system. Secondly, he believes these changes will help raise critical revenue for public services. His reasoning was that the old system had become stale and was no longer an adequate reflection of the way in which today’s wealth is distributed.
“We are intensely relaxed about people getting filthy rich as long as they pay their taxes.” – Peter Mandelson
Stephen Kinsella, a legal advisor and member of Patriotic Millionaires U.K., disputes Hunt’s forecasted revenue estimates. For example, he points out that Britain has more than 3 million millionaires. Even if all 10,000 of them left, that would only be a little over 0.3% of the total.
The ending of the ‘non-dom’ status also follows patterns in other countries that have used this device to lure rich migrants. As an example, in Italy wealthy foreigners can pay an annual fee, capped at 200,000 euros. This fee, a type of compensation, excludes their foreign assets and income from subject to taxation. These policies have brought a flood of high-net-worth individuals to these countries. In response, countries are racing to the bottom, competing more aggressively than ever to keep their rich people from leaving.
Lakshmi Mittal, the Indian-born steel billionaire, is one of the U.K.’s leading business icons. He is now considering a range of options for U.K. tax residency. The recent abolition of exemptions on offshore trusts may expose individuals like Mittal to a 40% tax levy on their global wealth, prompting further departures.
To the U.K. government’s credit, they are pushing these plans forward. Not West Palm’s efforts are under the growing influence to address massive issues about its capacity to maintain its well-heeled constituents. The implications of these changes extend beyond individual taxation; they may affect investment levels and economic growth within the country.