Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. Welcome to in the City.
Speaker 1: Each week we unpack a story that's crucial to the
Speaker 1: world's financial capitals. I'm Allegri Stratton.
Speaker 2: And I'm Francis Laqua.
Speaker 1: This week we're going to dig into the impact of
Speaker 1: the UK's decision to end the non dom residence status.
Speaker 1: The goal was to close a tax loophole most used
Speaker 1: by wealthy foreigners, but could the government's plan to generate
Speaker 1: billions more in taxes annually actually backfire. Welcome to the City.
Speaker 3: Of London, The City of the City of London.
Speaker 2: Release mind the gap between.
Speaker 3: The financial heart of the country, the city the city.
Speaker 3: Welcome to in the City, then clear of the doors.
Speaker 1: Pe so from. There's a new study out by the
Speaker 1: Center for Economics and Business Research. Its main finding is
Speaker 1: that the UK's tax overhaul for wealthy foreigners could cost
Speaker 1: the economy more than it brings in. Can you believe it?
Speaker 2: Well, we've already heard of a lot of people actually
Speaker 2: leaving because of the new rules, and the think tanks
Speaker 2: argument is that if just one in four of those
Speaker 2: affected choosers to leave the country, then the reforms to
Speaker 2: the tax policy would actually flip from a net gain
Speaker 2: for the Treasury to actually a.
Speaker 1: Cost yep and according to the Office for Budget Responsibility,
Speaker 1: Britain's official fiscal watchdog, around twelve percent of the UK's
Speaker 1: non doms would leave in response to the government's changes.
Speaker 1: So obviously that's not yet up at that one in
Speaker 1: four ratio, but nonetheless it's quite a large number, isn't it.
Speaker 2: Yeah, it's large. Now the Treasury is pushing back. It
Speaker 2: says it doesn't not recognize the figures in this report.
Speaker 2: But still report brings up some points that a lot
Speaker 2: of people in the city have been discussing. So in
Speaker 2: this episode we're going to talk about whether this is
Speaker 2: a clever tax strategy that levels of playing field, or
Speaker 2: isn't actually a risky move that could push away the
Speaker 2: very people who fuel parts of the UK economy. So
Speaker 2: to discuss all of this, we're joined by Nimeshah, chief
Speaker 2: executive officer of Blick Rothenberg. Now, Nimesh works closely with
Speaker 2: entrepreneurs across a wide range of industries. He advises them
Speaker 2: on all aspects of their personal and corporate tax affairs,
Speaker 2: whether they're just starting out, scaling up or planning an exit.
Speaker 1: So thanks for joining us, NIMESH. Can you just describe
Speaker 1: from your vantage point what you are seeing right now
Speaker 1: in wealthy individuals deciding how to handle this new regime.
Speaker 3: The climate on the non domin reforms has changed completely
Speaker 3: over the last twelve months since the original Tory announcement.
Speaker 3: There was an initial backlash from I know with individuals
Speaker 3: about leaving the UK as the original announcements were handled
Speaker 3: incredibly badly in terms of the shock announcement and the
Speaker 3: lack of consultation, and then they worry that a future
Speaker 3: labor government might make those rules even more difficult. Since then,
Speaker 3: we've seen maybe a tempered down of people actually wanting
Speaker 3: to leave the UK. That knee reaction has slowed down slightly,
Speaker 3: but there is still a direction of wealthy individuals who
Speaker 3: are at least planning on leaving the UK over the
Speaker 3: medium term. It may not have been as extreme as
Speaker 3: people leaving straight away on the fifth of April of
Speaker 3: this taxi here, but certainly people are making plans on schooling, housing,
Speaker 3: accommodation work, setting up their businesses abroad so that they
Speaker 3: can exit the UK over a longer period of time.
Speaker 3: So I think maybe some of the stories that we're
Speaker 3: seeing in the press are slightly blown out proportion around
Speaker 3: very high profile individuals that are making steps to leave
Speaker 3: and maybe can feasibly leave more easier because they already
Speaker 3: have established infrastructure abroad. I think the majority of high
Speaker 3: net worth individual population is taking a much more measured
Speaker 3: approach over the medium term to make plans to leave
Speaker 3: the UK, so we'll see this gradual effect over a
Speaker 3: period of time.
Speaker 1: The story we're looking at this week is this idea
Speaker 1: that as soon as it gets to be one in
Speaker 1: four of the UK's non doms leaving the UK, then
Speaker 1: that is when the policy goes from bringing in money
Speaker 1: to losing money. Do you think that's a threshold that
Speaker 1: will ever be reached.
Speaker 3: I suppose It's difficult to say where the one in
Speaker 3: four is actually come from. I imagine there is some
Speaker 3: sort of science and maths behind those statistics. At the moment,
Speaker 3: the government is banking on a number of non doms
Speaker 3: still staying in the UK and actually using the temporary
Speaker 3: Repatriation facility, which is a twelve or fifteen percent tax
Speaker 3: charge to bring historic moneies into the UK. A lot
Speaker 3: of the revenues actually coming from that, and if you
Speaker 3: look at the Ober projections, it was about thirty billion
Speaker 3: that the government were planning to raise over the lifetime
Speaker 3: of this parliament. I don't think there will be necessarily
Speaker 3: a tipping point in this parliament where we see one
Speaker 3: in four or if it's one in five, whatever the
Speaker 3: number may be, may lead where it starts costing the
Speaker 3: government tax revenue, because I think the effects of this
Speaker 3: is more gradual, giving the gradual pattern of people leaving,
Speaker 3: and also that hit the Treasury expected to get from
Speaker 3: the temporary repatriation facility as well.
Speaker 2: In the METS what kind of non doms are leaving,
Speaker 2: So I think overall you have seventy four thousand non
Speaker 2: doms in the UK. Now, under the previous system, non
Speaker 2: dams can basically avoid UK taxes on their overseas earnings,
Speaker 2: but would still pay taxes on domestic income, spending and
Speaker 2: any funds brought to the UK. I mean the concern
Speaker 2: if you're a wealthy businessman and we know there are
Speaker 2: a lot of them that chose the UK to be
Speaker 2: their home, but they have billions of dollars of billions
Speaker 2: of sterliings of investments elsewhere, I mean, it doesn't make
Speaker 2: it makes zero sense for them to stay in the
Speaker 2: UK if they're going to be our attacked on those assets.
Speaker 3: Yeah, tax was a driver, a incentive for wealthy foreigners
Speaker 3: to come into the UK, but it wasn't the only consideration.
Speaker 3: In my experience of working with non arms over the
Speaker 3: last twenty years, said to someone only today that London
Speaker 3: is the center of the world. Really has the perfect
Speaker 3: time zone. It has a solid sort of predictable climate
Speaker 3: as well. Maybe not the sunshine that we'd expect all
Speaker 3: the time, but the schooling is great, a long history,
Speaker 3: The schooling's great, It's got a history, the tradition. London
Speaker 3: has a lot of attraction as far as bars, restaurants, theaters,
Speaker 3: activities have to go. So as a home, London still
Speaker 3: has a lot of pull, not at least also the
Speaker 3: safety considerations and the rule of law as well. I'd
Speaker 3: say tax was maybe the carrot that hooked people in
Speaker 3: to considering the UK in the first place, but there
Speaker 3: are lots of other reasons why people would stay here
Speaker 3: as well.
Speaker 2: But again, if I'm a billionaire and I have you know,
Speaker 2: big businesses in India, if have big businesses in the
Speaker 2: US and now have to pay taxes on those business
Speaker 2: so frankly have nothing to do with the UK. Is
Speaker 2: there any other country that's as punitive for non arms
Speaker 2: as this new system is.
Speaker 3: Well, just to demystifyze some of that as well, if
Speaker 3: you do have a business with substance operating a different country,
Speaker 3: it's not necessarily immediate the profits of that business are
Speaker 3: going to be taxed on you. Now in the New World,
Speaker 3: there are and have been lots of statutory exemptions reliefs
Speaker 3: within the UK tax law which does exempt overseas businesses
Speaker 3: from being taxed in the UK provided they have operations
Speaker 3: and substance in those areas. So in some cases, yes,
Speaker 3: non doms will face additional taxes because of the new
Speaker 3: regime because of the money that they have accumulated outside
Speaker 3: of the UK and a generating income on that. But
Speaker 3: there are other jurisdictions who follow very very similar pattern.
Speaker 3: I mean, our closest sort of neighbor around this is
Speaker 3: the US, where the US actually has more difficult rules
Speaker 3: for overseas corporations that are operating outside of the US
Speaker 3: and taxes then being levied on those profits for US
Speaker 3: resident persons. But the thing that I suppose the UK
Speaker 3: needs to be very mindful of which I think the
Speaker 3: government has maybe underestimated, is a number of jurisdictions are
Speaker 3: popped up which are offering very very attractive tax incentives
Speaker 3: and holidays, and maybe the infrastructure isn't there, or maybe
Speaker 3: the attractiveness of those locations isn't quite there yet, but
Speaker 3: the tax is definitely turning a lot of heads for
Speaker 3: people to consider those locations, and I think those will
Speaker 3: become even stronger over the next few years as more
Speaker 3: people start to live in those areas and the infrastructure
Speaker 3: starts building up around them.
Speaker 1: Yeah, I mean before we get onto the rivals and
Speaker 1: the sort of morsels that they're offering to attract people
Speaker 1: to leave the UK. In terms of the British regime,
Speaker 1: my understanding was that for a certain age of very
Speaker 1: wealthy individuals, it was the inheritance tax policy in particular
Speaker 1: that was felt to be really something that they couldn't stomach.
Speaker 3: Yeah. I think that from my perspective in speaking to
Speaker 3: my peers in the profession, the inheritance tax was the
Speaker 3: straw that broke the camel's back. I think there is
Speaker 3: a real hatred for inheritantis. I mean it's widely reported
Speaker 3: the inheritance tax is the most hated tax in the UK.
Speaker 3: And for non doms, they've never had to really think
Speaker 3: about inheritance tax. It's something that they would not have
Speaker 3: been subject to under the Old World and through some
Speaker 3: sensible planning that they would have done using offshore trusts.
Speaker 3: They now face the reality of a cliff edge from
Speaker 3: now this April where they are exposed to inheritsonce tax
Speaker 3: forty percent on their worldwide assets. There is some limited grandfathering,
Speaker 3: but it's not as generous as what the original Conservative
Speaker 3: proposals were suggesting. And so that's the area where non
Speaker 3: doms are most concerned. That they've said that actually, I'd
Speaker 3: built up wealth, large amounts of it when i haven't
Speaker 3: had anything to do the UK. I've spent a period
Speaker 3: of time in the UK, and that full wealth now
Speaker 3: is exposed to UK inheritance tax at forty percent. And
Speaker 3: it's that forty percent that is the headline grabber here
Speaker 3: where people feel that is a big number and that's
Speaker 3: not something that they're prepared to stomach and there is
Speaker 3: a real and fairness around being taxed on something that
Speaker 3: had nothing to do with their UK or their time
Speaker 3: in the UK. So that's the I suppose the push
Speaker 3: factor here for lots of non doms. They're saying, well,
Speaker 3: i need to get out of the UK system because
Speaker 3: I'm not going to risk a forty percent hit on
Speaker 3: something that I just firmly believe should never be assessed
Speaker 3: to UK and Erison's tax in the first place.
Speaker 1: The government they were trying to do two things. They
Speaker 1: were trying to do something political, so they were trying
Speaker 1: to signal that, you know, to the Labor Party, to
Speaker 1: the left of the Labor Party, that they were going
Speaker 1: to be more egalitarian and redistribute wealth and all of that.
Speaker 1: They're also trying to make money with a very very
Speaker 1: straightened budget book. So they're the two things they were
Speaker 1: trying to operate for. But equally, I suspect if you
Speaker 1: can't of got them in a room and ask them truthfully,
Speaker 1: you know, do they regret some of it or the
Speaker 1: full extent of the departures we're watching. They might say
Speaker 1: that they're a bit worried because what has become more
Speaker 1: and more clear is that growth is what they need.
Speaker 1: By the next election, they need to show that the
Speaker 1: UK economy is growing and if you lose too many
Speaker 1: wealthy people, absolutely take your point that it is not
Speaker 1: yet at that kind of tipping point number that the
Speaker 1: report suggests, but if you lose too many people, that
Speaker 1: is trickier. Yeah.
Speaker 3: I think it would be remiss of the government and
Speaker 3: the Rachel Reason's team to acknowledge that this isn't concerning
Speaker 3: the stories and the plans that certainly individuals are making
Speaker 3: over the next few years, and how that then impacts
Speaker 3: the growth of gender. I think what we've also not
Speaker 3: talked about is the number of foreigners wealthy individuals are
Speaker 3: now not coming to the UK as well, which is
Speaker 3: very difficult for anyone really to measure and capture. If
Speaker 3: I suppose I've had my time, I suppose and go back.
Speaker 3: I think the government did a poor job at executing this,
Speaker 3: and that goes right back from the Conservative government when
Speaker 3: they announced the proposals as a phata con plea. There's
Speaker 3: no consultation period. They didn't engage with the professional community
Speaker 3: like myself on the design of these proposals. They were done,
Speaker 3: and the lip service I suppose the profession received afterwards
Speaker 3: also left a sour taste. And then I think Labour
Speaker 3: coming out and saying we're going to make these wolves
Speaker 3: worse again, that sent a lot of uncertainty into the
Speaker 3: international community around this. I think there is still an
Speaker 3: opportunity for the government, which not any government will probably
Speaker 3: ever do, but to hold their hands up and say
Speaker 3: we got this wrong, but we've got this wrong as well,
Speaker 3: not only on non doms. We've got it wrong on
Speaker 3: inheritance taxes, the farmers, the family businesses, the pension funds.
Speaker 3: There's a number of areas of change that the government
Speaker 3: have made on taxes as a package which has signposted
Speaker 3: and pushed non doms out of the UK. I think
Speaker 3: they could come back to the table and engage with
Speaker 3: certainly the non community and say we think we got
Speaker 3: this wrong. We can change this, and we can come
Speaker 3: up with a new system or an enhancement of currently
Speaker 3: of what we have, which could be a longer period
Speaker 3: than the four years that we've got right now to
Speaker 3: ten years to mirror kind of what some of the
Speaker 3: competitor jurisdictions are doing. And also we want to be
Speaker 3: able to find a way in which we can cushion
Speaker 3: some of the inheritance tax friction that we're seeing, which
Speaker 3: coupled with a fee that's been talked about a lot
Speaker 3: and some lobbying groups have proposed a tiered tax system
Speaker 3: where you would pay an annual fee based on the
Speaker 3: level of wealth that you have, which would protect you
Speaker 3: then from not only your income engagement, more importantly the
Speaker 3: inheritance tax regime, and also then balance the books by
Speaker 3: saying to the public that actually we need wealthy investment
Speaker 3: into the UK. The UK is an island and has
Speaker 3: been built on immigration investment here for a long time.
Speaker 3: Here's a means to be able to get more revenue
Speaker 3: from this population, balance the books, more money going into
Speaker 3: the public services which were desperately but also it supplements
Speaker 3: our growth agenda with more private investment into our businesses
Speaker 3: and infrastructure.
Speaker 2: No match. How many millionaires do you think the UK
Speaker 2: has lasted so far? So there were reports to saying
Speaker 2: that it was about eleven twenty twenty four. And if
Speaker 2: there is a change in tax regime inheritance taxation, do
Speaker 2: they come back? I mean it's very difficult to kind
Speaker 2: of pack up your family and come back to the UK.
Speaker 2: So is there long term damage done no matter what
Speaker 2: happens in the next couple of quarters.
Speaker 3: Yeah, I think it's important to say there is probably
Speaker 3: a bit of sensitivity in that eleven thousand number that
Speaker 3: is based on a projection, an estimate. It's probably the
Speaker 3: only bit of research that probably exists out there is
Speaker 3: the reality eleven thousand. I don't think anyone's captured that
Speaker 3: data yet. Hopefully we'll see some official Treasury data come
Speaker 3: out over the next few years. But what I am
Speaker 3: seeing is two schools have thought here really from non doms,
Speaker 3: which is one those that are prepared to ride it
Speaker 3: out for the next four or five years during the
Speaker 3: lifetime of this government because they feel that this government
Speaker 3: won't last a second term, and say, actually, I'm prepared
Speaker 3: to take the tax exposure in that period of time.
Speaker 3: Maybe they're in a fortunate position where they're not quite
Speaker 3: at the ten year juncture, so they're not fully exposed
Speaker 3: to inheritance tax yere, so they've got a bit more
Speaker 3: time in the hands. The other camp, we're saying, actually,
Speaker 3: I'm gone, I need to get out of the system
Speaker 3: before inheritance tax does come to bite me. But I'm
Speaker 3: keeping a very watching eye on what will happen around
Speaker 3: potential changes if we do have, say, a reform government.
Speaker 1: I'm going to say it might not necessarily get better
Speaker 1: for them.
Speaker 3: Well, it may not because of a slightly different political
Speaker 3: agenda if it is a reform government in the future,
Speaker 3: but depending on where the direction goes politically. And I
Speaker 3: think that's really important that some are saying, well, this
Speaker 3: is a short term move for me out of the UK,
Speaker 3: because I actually want to go and live in London.
Speaker 3: I want to live in the UK for all the
Speaker 3: reasons that we've talked about, and so in the world
Speaker 3: where it is a bit more feasible to be more
Speaker 3: transient and be more mobile and work abroad. It's inconvenient
Speaker 3: where you've got young families and maybe certain business operations here.
Speaker 3: But I think people are prepared to take a five
Speaker 3: year view and then in the hope that in five
Speaker 3: years time it will change. But I suppose the warning
Speaker 3: shot there is that's an optimistic view. It's very difficult
Speaker 3: for any government, new or old to then say, well,
Speaker 3: there's a tax revenue that's coming in. How do I
Speaker 3: square the circle by potentially a giveaway both politically and
Speaker 3: financially in order to make this work. And so the
Speaker 3: government it's like a drug. I suppose when you raise taxes,
Speaker 3: it's very difficult to get off that drug. And I
Speaker 3: think that's the difficulty that we'll find in the future.
Speaker 3: So for some people, as I say, are in holding
Speaker 3: pattern and hopeful that things will improve over the next
Speaker 3: five years.
Speaker 1: I wonder whether for a lot of these countries, including Italy,
Speaker 1: which has got a very beneficial regime for them, but
Speaker 1: even so, you know, they have the same constraints on
Speaker 1: an aging population, needing more money, needing more taxation. Clearly
Speaker 1: they've made a decision that they want to entice the
Speaker 1: billionaires and millionaires rather than you know, tax them at
Speaker 1: the level that we are. But nonetheless, lots of nations
Speaker 1: are facing the same pressures, demographic pressures and fiscal pressures,
Speaker 1: which is why they're starting to look at non doms.
Speaker 1: And I suppose if you're a non doom you're thinking, well, actually,
Speaker 1: my room for maneuver over the next few years is reducing.
Speaker 3: Yeah, places like Italy clearly have made a strategic decision
Speaker 3: that this is where they're going to place their chips
Speaker 3: by creating this very attractive tax and immigration regime to
Speaker 3: go and entice wealthy foreigners into Italy. Now, what I
Speaker 3: suppose I'm encouraged by when I look at governments like
Speaker 3: Italy is that they've made a strategic decision. It doesn't
Speaker 3: feel like there is a strategy with our government at
Speaker 3: the moment around what they actually want to do. It's
Speaker 3: based on lots of reaction and ideology unfortunately at this stage.
Speaker 3: So I'm unclear as someone who's been working in tax
Speaker 3: for the last twenty years as to what this government
Speaker 3: is trying to achieve over a long term period and
Speaker 3: how they're going to get there. There doesn't seem to
Speaker 3: really be a plan. What I would say like to
Speaker 3: see from the government is to come out and put
Speaker 3: their flag in the ground and say, strategically, this is
Speaker 3: what we're aiming for, and these are the policies, whether
Speaker 3: they're uncomfortable politically or not, but this is how we
Speaker 3: go and achieve those plans. Difficult decisions do need to
Speaker 3: be made, which may not make you a popular government,
Speaker 3: especially with your core demographic of voters who perceive non
Speaker 3: doms and the wealthy in some way to be a
Speaker 3: root cause of some of the problems that the country's facing.
Speaker 3: But we have seen other countries have made it work.
Speaker 3: Italy now for the best part of ten years, this
Speaker 3: regime has survived. It's changed slightly. They've doubled the fee,
Speaker 3: possibly in reaction to the fact that there's more demand
Speaker 3: of people who wanting to come there. But I think
Speaker 3: we have lost our way on understanding actually the behavioral
Speaker 3: response of non doms, where it's a much easier now
Speaker 3: to go and find a new home very quickly because
Speaker 3: there are other countries that are looking to buy in
Speaker 3: that wealth and the benefits of that wealth that can
Speaker 3: be generated locally.
Speaker 2: Nimesh, thank you so much for joining us.
Speaker 3: Thank you.
Speaker 1: Thanks for listening to this episode of In the City
Speaker 1: from Bloomberg. This episode was hosted by me Alecra Stratton
Speaker 1: and Francine Laqua. It was produced by Someasadi Moses and
Speaker 1: Am and Tala Armadi. Brendan Francis Newnham is our executive
Speaker 1: producer and special thanks to Nimesh Shah. Please subscribe, rate,
Speaker 1: and review wherever you listen to podcasts.