Keir Starmer is worried about who’s coming into the country. This week, he launched a white paper with the aim of cutting migration. Britain risks becoming an ‘island of strangers’, he said. However, it’s not just arrivals that should give him sleepless nights. It’s the number of people in the departures lounge too.
London’s private members’ clubs, top schools, luxury car dealerships and estate agents are all grappling with the same problem: their customers are fleeing the country. Since 2016, almost 30,000 millionaires have left Britain – an outflow unmatched in the developed world. They are either returning home or moving abroad. The reason is a slew of tax changes that have made it much less attractive to be rich in Britain.
Last year, the government had to borrow nearly £15 billion more than expected thanks to lower tax revenues. Receipts came in well below what the Office for Budget Responsibility (OBR) had predicted – in part due to the Treasury’s failure to anticipate capital flight. Last year alone, it’s believed that London lost 11,300 dollar millionaires. The only other city in the entire world to be losing millionaires right now is Moscow. House prices are falling fastest in Westminster, Kensington, Chelsea, Hammersmith and Fulham.
It’s hard to feel sorry for the ultra-wealthy. But the reality is we need them, because Britain is dangerously dependent on its highest earners. The top 1 per cent of earners pay nearly 30 per cent of all income tax. Zoom in further and the imbalance becomes even starker. The top 0.1 per cent pay 13 per cent. The top 0.01 per cent – around 4,000 individuals – pay 6 per cent of all income tax, contributing a combined £17 billion annually, or around £4 million each. If just one of them leaves, replacing them would require the earnings of 1,300 average taxpayers. So when the uber-rich leave, it’s the rest of us who suffer.
Principal among the reasons the rich are fleeing is the abolition of the non-dom regime. Announced in last year’s spring Budget by Jeremy Hunt and confirmed by Rachel Reeves’s last autumn, it ends the long-standing system that had allowed certain UK residents to avoid tax on income earned abroad. As of last month, Britain operates a residence--based tax system: after four years, residents are taxed on global income and gains; after ten, on worldwide assets – even those acquired before their arrival. Add to that the tightening of business property relief, which makes investing in factories and buildings riskier, and new rules which tax performance-related investment earnings as income, and Britain is becoming a hostile environment for the rich.
This isn’t the worst of it. James Quarmby, of Stephenson Harwood, one of the country’s top non-dom lawyers, says his clients can live with income and capital gains tax – but the ‘real villain’ is inheritance tax, especially the scrapping of trust protections. There’s a convention that when it comes to inheritance tax and trusts, any changes only affect those created after the change in question. Reeves has ignored that convention, retro-actively taxing trusts set up years ago – a major blow to international wealth planning.
‘The rich have been thrown under the bus after putting energy, time and love into this country’
Many see it as an issue of fairness. The 1980s inheritance tax reforms protected existing trusts and both Gordon Brown and George Osborne retained these protections when making their reforms. But Reeves has done the unthinkable. The October reforms are the only time this protection has not been included, singling out non-doms. ‘It’s like walking across a park, then being fined weeks later when a “Keep off the grass” sign appears,’ says Quarmby. ‘They feel betrayed. The Tories, once the allies of wealth creators, turned on them out of fear of electoral oblivion. They’ve been thrown under the bus after putting energy, time and love into this country – only to be painted as bloodsucking foreigners. They’re not coming back.’
Labour and their supporters question whether the wealthy are really leaving, often dismissing the data. Much of it comes from New World Wealth, a one-man outfit that tracks millionaire migration using sources like LinkedIn and Facebook. Critics scoff – but is it really less credible than the Office for National Statistics (ONS)? Andrew Bailey, the Bank of England Governor, recently spoke of a ‘substantial problem’ with certain ONS numbers and ordered his staff to rely on the BoE’s statistics. The Ministry of Defence has relied on New World Wealth data in the past – to make the case that the rich are fleeing Russia. Odd, then, if it’s now deemed too flaky to track what’s happening here.
Speak to anyone in finance and they’ll tell you that capital flight is real. One London firm quietly relocated its entire operation to Geneva after every one of its 100-plus clients cut UK ties. By European standards, tax on lower and middle earners isn’t excessive – but the rich have been squeezed for decades and now the pips are squeaking.
Some of the country’s largest taxpayers are already gone. Goldman Sachs’s vice chairman has moved to Milan. The Livingstone brothers (owners of Cliveden House) have relocated to Monaco. Frédéric de Mévius, an heir to the world’s largest brewing company, has returned to Belgium. Nassef Sawiris, owner of Aston Villa, has shut down his London office and moved 40 staff to Abu Dhabi. And it’s not just the non-doms. Charlie Mullins, the founder of Pimlico Plumbers, who has paid more than £120 million in UK tax, now divides his time between Spain and Dubai. ‘We’re penalising successful people,’ he said. ‘It’s driving them out.’ Earlier this year it was reported that the hedge-fund billionaire Alan Howard was considering a move to Geneva. I’m told that many of his staff are inquiring about Swiss flats.
The ultra-wealthy are moving their families, employees and, most importantly, their cash to more welcoming countries. Italy offers new residents a flat tax of €200,000 a year on global income for 15 years – no wealth tax, no inheritance tax and not even a requirement to disclose foreign income. Since 2017, at least 1,100 ultra-wealthy individuals have taken advantage of the scheme.
Some 240,000 Brits now call Dubai home, and many of them are very rich – the city has seen a doubling of the number of millionaires in just a few years. One told me that most of his network had already decamped. A finance executive said his crypto-rich peers were favouring Malaysia and Switzerland for their zero tax on digital gains. Another said entire teams of brokers from his firm had moved to Geneva.
What’s inexcusable is that the Chancellor was warned that this would happen. When plans to reform trusts emerged, the financial industry sounded the alarm. Even before Labour took office, Reeves’s team were told – in writing – that scrapping protections for existing trusts would be the ‘final nail in the coffin’ for wealthy UK residents. Ignoring that was ‘stupid’ on the part of the Chancellor, said one wealth management industry insider who offered the government advice.
After the election, HMRC met with wealth managers in Leeds, Manchester and London over a three-week period late last summer. The advice was consistent: if you mess with existing trusts, the wealthy will leave. Not only did the Treasury ignore the warnings; it catastrophically misunderstood the maths. Officials estimated that scrapping trust protections would raise £400 million. But independent forecasts suggest it could cost billions. The real problem is flawed modelling at the heart of government. The Treasury relied on static analysis, ignoring the possibility that people would react to a harsher tax system by leaving. Ministers placed blind faith in a model that looked only at one side of the equation. ‘It polls well’ is the defence offered behind closed doors in Downing Street.
The core of this miscalculation was a report from the University of Warwick and the London School of Economics, which estimated that only 77 of Britain’s 70,000 non-doms would leave. That report did not take into account the impact of abolishing inheritance tax protections. Even the authors have since privately admitted their assumptions were off. Meanwhile, Treasury officials and Labour’s front bench have used it as the foundation of policy.
The OBR subsequently included trusts, forecasting that 12 per cent of non-doms without trusts and 25 per cent with them would leave – enough to wipe out any gain from the inheritance tax reforms, others suggest. In theory, if no one left, the changes might raise £10 billion, says the OBR. But new research from the Centre for Economics and Business Research disputes that, estimating the real gain at just £2.5 billion. In the worst-case scenario, the changes could cost £12.2 billion over the rest of this parliament. Again, that model only looks at the tax take on individuals’ direct assets. It doesn’t predict the loss of people who run companies taking their business elsewhere; the Adam Smith Institute says 44,000 jobs could be lost.
To make matters worse, HMRC is flying blind. The Treasury appears to assume that these wealthy individuals will notify the tax authorities that they’ve left. They don’t. It can take two or three years before HMRC fully registers someone’s departure, thanks to lagging tax data and outdated systems. The 2025/26 tax return doesn’t need to be filed until 2027, so we won’t know what’s happening now until 2028.
In many ways, the damage has already been done. The wealthy tend to plan long-term. When wealth managers and lawyers are asked whether reversing these tax changes might bring people back, the answer is no. In fact, a U-turn could make things worse. Investors value certainty above all. Changing the rules and then changing them back would reinforce the idea that Britain is a chaotic place for wealth. ‘Any softening of these rules is more likely to spook people. What they really want is certainty,’ said Adam Bonell, a tax partner at HW Fisher.
What’s left to stay for? You can’t insure a Range Rover in much of central London thanks to endemic theft; private school fees are soaring; infrastructure is fraying; and now the taxman wants a global share of everything you own, even after you die.
If the exodus is half as bad as those I’ve spoken to think, it will add another burden to a state that is already straining to fund itself. ‘Tax the rich’ comes the cry from the left – but what happens when they are gone? Starmer has ruled out raising income tax; but across Whitehall and Westminster, officials are quietly working on the assumption that a hike to the basic rate – by at least 2p in the pound – is not a matter of if, but when.
The Treasury thought it could squeeze the rich without consequence. It was wrong. And unless that mistake is acknowledged soon, it won’t just be the wealthy who pay the price. It will be all of us.
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