Wealthy Non-Doms Push For Italian-Style Tax Regime In The UK

Wealthy foreigners and their advisers are lobbying the UK government to adopt an Italian-style tax regime, arguing that it would prevent an exodus of high-net-worth individuals from Britain. The proposed changes come as the Labour government prepares to implement stricter rules on the existing non-domicile (non-dom) tax status.

Key Takeaways

• Wealthy non-doms are advocating for a tiered tax regime similar to Italy's flat-tax system.

• The proposed system would exempt non-doms from UK inheritance tax on non-UK assets and foreign income for up to 15 years.

• A tiered annual charge would be introduced, ranging from £200,000 to £2 million based on net wealth.

• Concerns are growing that the current proposals could drive wealthy individuals out of the UK.

Background On Non-Dom Tax Status

The non-dom tax status allows wealthy foreign residents to avoid paying UK tax on overseas income. The previous Conservative government had pledged to abolish this regime, reducing the time individuals could benefit from it from 15 years to just four. The Labour government has confirmed it will implement these changes and further tighten the rules, particularly regarding the use of trusts to shelter overseas assets from UK inheritance tax.

The Proposed Tiered Tax Regime

The lobby group, Foreign Investors for Britain, has proposed a tiered tax regime that would allow non-doms to pay a fixed annual charge based on their net wealth. The structure is as follows:

1. Net Wealth Up to £100 Million: £200,000 annual charge

2. Net Wealth Over £500 Million: £2 Million annual charge

This proposal aims to provide a more attractive tax environment for wealthy individuals, similar to the flat tax introduced in Italy, which has successfully attracted foreign investors.

The Italian Model

Italy's flat tax system, introduced by former Prime Minister Matteo Renzi, allows new residents to pay a flat tax of €100,000 on foreign income and assets for up to 15 years, with full exemption from inheritance tax on foreign assets. This model has been credited with reversing Italy's brain drain and attracting wealthy foreigners. Recently, the Italian government increased the annual levy to €200,000, further enhancing its appeal.

Concerns Over Current Proposals

The current proposals from the Labour government have raised concerns among non-doms and their advisers. Many argue that the new inheritance tax rules could lead to a significant outflow of wealthy individuals from the UK. Leslie Macleod-Miller, CEO of Foreign Investors for Britain, expressed worries that the government’s approach could drive potential partners for economic growth to other jurisdictions.

Economic Implications

A report by consultancy Oxford Economics suggests that the Labour government's proposed reforms could actually cost the UK £900 million by 2029-30, contrary to the intended revenue increase. In contrast, the lobby group's alternative proposal could generate £1.1 billion for the exchequer in the same timeframe.

The Future Of Non-Dom Taxation

As discussions continue, the government is under pressure to reconsider its stance on non-dom taxation. A significant percentage of non-doms have indicated that they would be more inclined to remain in the UK if a special tax regime, similar to Italy's, were offered. This highlights the competitive landscape for attracting and retaining high-net-worth individuals in the UK.

In conclusion, the push for an Italian-style tax regime reflects broader concerns about the UK’s ability to retain wealthy residents amidst increasing international competition. The outcome of these discussions could have significant implications for the UK economy and its attractiveness as a destination for foreign investment.

Sources

• Wealthy non-doms lobby UK for Italian-style tax regime , Financial Times.