The UK closed a tax loophole for the global rich – now they’re fleeing

Instead of paying up, wealthy expats are getting out — sparking questions about whether the move will raise any money at all.

Bassim Haidar used a centuries-old loophole in the UK that catered to wealthy foreigners. Picture: Laura Pannack for WSJ

The UK is trying to tax the superrich. It’s off to a bumpy start.

“I’m on my way out,” said Bassim Haidar, a Nigerian-born Lebanese businessman who moved here in 2010. “There comes a time when you don’t feel welcome anymore, and it’s time to just start packing and leaving.”

Haidar is one of the estimated 74,000 who used a centuries-old tax loophole, abolished in April, that catered to the global rich. The nondomiciled — or non-dom status, as it is known — allowed foreigners living in the UK to pay tax only on what they earned domestically. Profits made abroad were ignored unless brought into the UK.

Beset by high public debt and crumbling infrastructure, the UK hoped eliminating non-doms would bring in about $69 billion by 2030. But instead of paying up, wealthy expats are rushing for the exits, sparking questions about whether the effort will raise any money at all.

Like most countries, the UK taxes people who live there on their global income. Picture: iStock

The British experiment has laid bare the difficult politics of taxing the rich. Taxing high earners has become a rallying cry on the left as a solution to income inequality and fraying social-safety nets. Low-tax advocates say taxes on the wealthy are counter-productive, driving away job creators and big spenders.

In the US, New York City Democratic mayoral nominee Zohran Mamdani has proposed a “millionaires tax” on New Yorkers making more than $US1 million ($1.5m) a year, prompting vocal rich people to say they will leave for lower-tax jurisdictions such as Florida or Texas.

One challenge of taxing the wealthy is that they are highly mobile, with houses around the world, private jets and an army of advisers who can sort out visas and bureaucratic paperwork quickly. Jurisdictions such as Dubai, Italy and Monaco have rolled out the red carpet, offering no taxation or structures similar to the UK’s old non-dom status.

Haidar earns most of his money from businesses he started overseas. He estimates the tax overhaul will increase his UK tax bill by five to seven times. A father of five, he also worries about the UK’s 40 per cent inheritance tax, which now would apply on his global assets.

Haidar is selling his UK properties and plans to leave this summer. He’ll split his time between Dubai and Greece.

Nassef Sawiris, an Egyptian billionaire and co-owner of the English soccer team Aston Villa, has relocated from the UK to Italy, according to regulatory filings. German crypto billionaire Christian Angermayer moved to Switzerland last year from London. The UK has introduced a new tax benefit for foreign income, but it is limited to four years and many former non-doms don’t qualify.

“The government was maybe overconfident that the international wealthy loved London so much … that they wouldn’t go,” said Charlie Sosna, a partner in law firm Mishcon de Reya’s private-wealth division.

Like most countries, the UK taxes people who live there on their global income. That is different from the US’s citizenship-based system, under which all Americans are subject to US taxes no matter where they live.

Wealthy Britons have been trying to escape the UK’s high tax rates for decades. In the 1970s, the Rolling Stones moved to France to avoid taxes, while David Bowie went to Switzerland.

The lucrative non-dom loophole had the opposite effect, drawing rich foreigners to London. The system dates back to 1799, when the country’s first income tax was imposed to fund the war against Napoleon.

In the 1970s, the Rolling Stones moved to France to avoid taxes …

… while David Bowie went to Switzerland.

Only income earned in the UK was subject to the tax, allowing investments in the empire’s colonies to avoid taxation. The exemption was restricted over time to largely benefit foreigners who don’t expect to live in the UK permanently.

In the 1970s, Middle Easterners rich off oil and shipping came to London, buying mansions, hotels and department stores. That was followed by a wave of Russian oligarchs in the 1990s, earning the capital city the nickname Londongrad. In recent years, Chinese and Indian nationals have become a bigger force.

The UK always knew that some rich residents would leave because of the tax changes and built that into its forecasts. The UK’s independent budget watchdog, the Office for Budget Responsibility, estimated that among a large subset of non-doms, around 12 per cent will move. But it warned this month that departures could be higher and said the UK’s “growing reliance on this small and mobile group of taxpayers therefore represents a fiscal risk.”

Campaign groups that back lower taxes paint a gloomier picture. A report from the Centre for Economics and Business Research, commissioned by the Land of Opportunity campaign, forecast that a higher share of non-doms would leave and suggested the government could lose money if the migration rate tops 25 per cent.

Academic studies of tax systems in the UK, Switzerland and the US show a divide among the wealthy. The superrich and elderly are more likely to move if their tax or estate bill rises. Families with school-age children, or people who work in salaried jobs, such as lawyers, are less likely to leave.

Andy Summers, an associate professor of law at the London School of Economics, studied a previous overhaul of the UK’s non-dom program in 2017 and found that about 5 per cent affected by the reform left. Those who stayed paid 50 per cent more in UK tax.

“It’s not the first time wealth advisers have said the sky is falling in,” he said. “But the noise is much louder this time.”

Summers thinks ending the non-dom status, which has been criticised as unfair for decades, will raise money.

“It is hard to make any fairness argument that one group of people who are living in the UK should be paying lower tax rates than others,” he said.

UK Chancellor of the Exchequer, Rachel Reeves. Picture: Carl Court/Getty Images

Businesses that cater to the rich are being affected by the departures. Sales of London residential properties worth more than $US10 million ($15.3m) dropped by 37 per cent in the first quarter, according to real-estate firm Knight Frank. Prices are at a 10-year low, and deals that used to take a few days to negotiate now take weeks, said Stuart Bailey, the agency’s head of super-prime sales in London.

“There’s no question that people are leaving London,” he said. “But it’s definitely not doomsday.”

Many wealthy expats argue that their contribution to the UK goes beyond taxes.

Canadian Ann Kaplan Mulholland moved to the UK in 2022 after selling her medical-loan business and her youngest child started college. She bought a rundown 13th-century castle and spent £15 million, equivalent to $31 million, to make renovations and build restaurants and a wedding business on site.

Mulholland hired a staff of roughly 100, joined her local church and started doing her grocery shopping at the retailer Marks & Spencer. But she is now on her way out. She and her husband, a plastic surgeon, applied to move to Italy, which charges a flat fee of about $352,000 a year for expats in lieu of tax on foreign income.

“It’s very difficult to go because we’re settled,” she said. “I would be the happiest person ever if all this gets reversed.”

Wall Street Journal