Ultra high net worth non-doms have already begun leaving the UK as a result of Labour’s proposed exit tax on the wealthy, according to David Lesperance, managing partner at Lesperance & Associates.
Speaking to FT Adviser, Lesperance discussed how UHNW non-doms were racing for the exit door with many already having left to go to more favourable jurisdictions.
He said: “I have had 27 people leave. They are gone. And I probably have got the same amount who are ready to leave. They are saying, 'okay, let us see what happens on October 30', but they would be ready to leave before April.”
This comes as it was announced that chancellor Rachel Reeves was being urged to introduce CGT exit charges on people when they are leave the UK in the upcoming October Budget.
The idea came from think tank Resolution Foundation which said CGT was “ripe for reform”.
Lesperance believed it was very likely Reeves would be bringing in the tax because she had to fill the fiscal hole of £22bn somehow.
“When clients ask me, 'what do you think the danger zones are?' I say, 'well, IHT, is the ideology versus the practicality issue'. Reeves is thinking, 'do I get rid of the excluded property, protected trust, and bring all that into the IHT net?' Oh, it's juicy, but is it going to cost me more in UHNWs leaving? We will see where she falls on that.
“Pensions, it is juicy but is there going to be too much pushback because it's targeted, particularly at elderly people? Capital gains increases, carried interest, exit tax on the other hand, that is tempting. Canada, US, Australia, lots of countries have them, and they've kept them. Why? Because they work.
“When I left Canada, for example, I'm the one that had to say, this is the value of my assets. And I could say, my house is worth £10. Well, I was going to get challenged on that. So I have to give a value which I can support, because otherwise I am going to lose it in an audit.
"But if the value of my house goes down next year, that is my problem. That is not the problem of the tax authorities and also Labour supporters are not becoming non-residents, so the exit tax is not affecting my voters,” he explained.
Life Inertia
Lesperance discussed how UHNW non-doms have begun to leave the UK because they have little life inertia.
This is a Newtonian principle that UK taxpayers have a certain amount of life inertia and would only depart if the force of additional taxation is greater than that inertia.
He said: “UHNW foreigners do not need to remain in London to make or maintain their wealth. Future exposure to worldwide UK income and capital gains if the remittance basis is abolished may not be enough to cause them to leave.
"This is because they can arrange their affairs to have minimal income. Furthermore, rather than trigger capital gains by selling assets they can borrow against them to cover living expenses.
