Beyond the headlines: The tax insider’s view on the great tax exodus 

At Gerald Edelman, our tax team has had a busy 24 months. Not only helping our clients to navigate governmental budgets and tax changes but also supporting the increasing number who are considering a move abroad. 

This skyrocketing interest in relocation has led to the busiest ever January-February periods for our team. Unlike in previous years, a wide range of macro-economic and social factors has meant that the demographic range of leavers has broadened, spanning from ultra-high net worth individuals and professionals to multiple generations of families.  

Whilst the UK’s progressive tax system certainly isn’t the only reason that people and businesses are considering moving abroad, more often than not, it is acting as the trigger point on top of preexisting lifestyle desires. 

So, who is leaving and what is driving this exodus? 

Families and young people

The most significant shift is that many of those individuals who are currently considering leaving the UK are not your traditional non-dom individuals. Rather, they are people who have been in the country for generations, such as young people with families that are earning well and creating wealth. But due to the tax regime they are now considering alternatives. For many of these individuals, they were happy to pay tax up to certain point when they felt other elements made it worthwhile. However, factors such as private school fee taxes, the weather and the general quality of life have prompted a rethink of whether the UK is ‘right’ for them. 

Seeing several generations of families wanting to move together is also something relatively new. Rather than just parents and their children relocating, we are now seeing grandparents joining them. 

Mid-level professionals are also a key demographic; indicative of motivations going beyond taxes. For example, teachers are relocating for salaries that are almost double, opportunities for their children to get a private education and for them to have a better chance of buying a house. 

Non-doms

Historically, those clients that came to the UK to benefit from the previous non-dom tax regime, would have typically set up a home here with their families, built businesses and pumped wealth into the UK economy. These clients have been steadily leaving as the tax regimes for offshore trusts changed and the non-dom regime shifted, and for many the element that has tipped the balance has been the Inheritance Tax changes. In many instances, they may have been happy to pay Income Tax and the Capital Gains Tax, but the prospect of their worldwide estate being subject to UK Inheritance Tax has been a bridge too far. 

Entire business teams

Post-COVID remote and flexible working conditions have also had a significant impact, meaning that businesses and their employees no longer need to be situated in a specific geographical location. Therefore, where we may have previously seen certain senior team members relocating on their own, now we are seeing businesses setting up test sites with the overall goal of moving entire teams abroad. 

This is happening across small, medium, large enterprises and a wide range of sectors including private equity, banking, accountancy or oil traders. 

Entrepreneurs

As for entrepreneurs, we are unfortunately beginning to see the ramifications of the UK’s current low performance, high regulation business environment. 

To put it bluntly, these are exceptionally challenging conditions in which to start or grow a business. There is little incentivisation, combined with heavy regulation and in some cases, verging on penalisation. It is not an environment that lends itself to fostering entrepreneurial spirit or encouraging anyone to take risk and as such, people are understandably not choosing to build businesses here anymore. 

The same trend is evident across larger clients with very well-established businesses who are deciding to move abroad for tax reasons and are either taking their entire business with them or are choosing to sell. From a private equity perspective, it is an easy market to sell businesses in the UK right now, due to lower-than-average valuations so business owners are increasingly tempted to sell up and start again elsewhere. 

Are any businesses and individuals still choosing to come to the UK?

People are coming to the UK in much smaller numbers than in previous years. Moreover, they are very different to the individuals that used to move here because of the way the tax regime has changed. It provides a fantastic opportunity for people to move here for up to four or nine years and avoid their worldwide estates being subject to UK Inheritance Tax. Many are using this to their advantage and are simply waiting for their children to finish education and then plan to leave straight away. If they do need to stay longer, they will have put in place plans to cover the Inheritance Tax whilst they’re in the UK and for the tail that will follow them. 

Where we are seeing more movement is from countries like the USA. In states like California that have seen a wealth tax introduced, very high net worth individuals and billionaires are moving to the UK for two years for example, before moving back to low tax states such as Florida. 

Unfortunately, it is easy to exploit these tax regimes, and it means that these individuals are not positively impacting or paying into the UK economy. The imbalance between the number of people who are leaving and moving to the UK, is also likely to have a trickle-down impact on the economy and the jobs market, as businesses and opportunities shift to new locations. 

What are the most common misconceptions about leaving the UK?

Not all clients are aware of the level of organisation and planning that is required to move abroad. Outside of taxes, we see a lot of challenges around lifestyle changes and living arrangements, particular where one spouse is more emotionally and socially attached to the country.  

Those who make it work successfully tend to be meticulous about scheduling and planning, particularly when managing family relationships or connections in the UK around the strict day counts, for example. Managing their work and personal lives through day tracking apps, for example can be a daily part of life. 

The degree in which their lifestyle will need to be changed and be planned out in advance can catch some people off-guard, so it is worth taking time to consider all practical considerations and limitations before making any knee-jerk decisions. 

With around 80% of our clients relocating within the UAE and to Dubai in particular, current instability in the region is no doubt having an impact on those considering the move and on those already out there who may now be thinking more seriously about coming back. 

The tax penalties for returning early will very much depend on the location but if you are looking to return from Dubai specifically, stay tuned for our article about the specific tax considerations to keep in mind. 

When considering a move abroad, we would always recommend consulting an expert who can help you to effectively future proof your finances, support you in navigating and mitigating against any unintended consequences you may not have considered and ensure that documentation around UK pensions, wills and insurance are watertight. Contact us today to talk through your options.