In April, Hungarian investor Gábor Futó attended an event in London organized by a private bank. The theme of the gathering was the end of the UK’s non-wealth tax regime and conversations with the group of around 50 wealthy expats also in attendance followed a similar vein.
“Everyone was talking about where to go, how to go and what would happen to a trust,” recalls the co-founder of real estate development company Futureal Group.
Last month, the Conservative prime minister at the time, Jeremy Hunt, tried to damage the Labor Party when he unexpectedly pledged to deliver. Abolish the British colonial regime of non-dominanceallows wealthy expats to avoid paying UK tax on overseas income. But Hunt did make some concessions that then-opposition shadow Rachel Reeves vowed to end soon after. Importantly, Labor is committed to ending the use of offshore trusts to avoid inheritance tax – levied at the standard 40% rate in the UK.
Futó conducted a poll of the room, mainly of businessmen and non-governmental investors. He asked them if they would be willing to pay an annual fee of around £500k to stay in the UK and continue to enjoy the benefits of non-statehood. “Everybody raised their hands,” he said.
Faced with a large personal tax bill – or the unappealing prospect of having to leave the country to avoid one – the episode convinced Futó that there was an opportunity to modernize the tax regime for individuals. abroad, which would allow the UK to fend off sweeteners introduced by countries such as Italy, Switzerland and the United Arab Emirates that are attracting high-income earners.
Futó is one of the main figures in a group of businessmen, investors and advisers trying to shape the biggest tax reform for wealthy foreigners in the UK since the regime was introduced. introduced in 1799, to shield those with foreign assets from wartime taxes.
Building on previous work carried out by a group of law firms including Withers, Charles Russell Speechlys and Taylor Wessing, the campaign crystallized into Overseas Investors for Britain, a lobby group established established after the general election in July. While much of the country faces tax hikes in the upcoming BudgetDespite having neither the means nor the connections to lobby the government, Foreign Investors for Britain received initial funding of £300,000 from its founding members, according to a person familiar with the matter. with this situation.
Its main demand is that the government come up with one tiered tax regime that would exempt non-UK assets from inheritance tax and exempt them from UK taxes on foreign income, profits and certain UK investments UK for up to 15 years.
They will pay varying annual fees to achieve this, from paying £200,000 for net assets as high as £100 million to £2 million for net assets over £500 million. This would mirror similar regimes in Italy and Switzerland.
Alex Algard, a founding member of Overseas Investors for Britain, who moved to London from Seattle eight years ago to open the international headquarters of his software company Hiya, said: “We support Support the Labor Party to eliminate the outdated non-government regime. . “However, we want to reduce the impact on this important segment of UK tax revenue. These people are highly mobile and it would cost the UK economy dearly to lose them.”
Dominic Lawrance, a partner at law firm Charles Russell Speechlys, said the lobby group initially set out to “ensure the government makes informed decisions, not based on conjecture, blind optimism or previous research with many errors.” and one of its first members. He admits that “financial modeling is the most difficult thing” because there is so little comprehensive data on donations from the UK’s NGO contingent.
It also wants to dispel the idea that one report in 2023 by academics at the University of Warwick and the London School of Economics is the appropriate basis for government policy. The report estimates that removing the tax perks enjoyed by the UK’s non-state regime would net the government £3.6 billion a year. These findings suggest that there is only a “modest” risk of the wealthy leaving the country, which is at odds with anecdotal evidence from members of the lobby and consultants. their advice.
Earlier this summer, British Overseas Investors commissioned consultancy Oxford Economics to produce a report on the proposed reforms, which the company worked over the summer break to complete. It set up a website and distributed an online survey to a network of NGOs and their advisors to determine the behavioral impact of any changes.
When the first phase of the OE report was published in September, it contradicted figures from academics and those from the UK government’s Office for Budget Responsibility. It is estimated that, rather than raising more tax revenue, the proposed reforms could cost the budget £0.9 billion by 2029-30. It also found that 83% of the 73 non-owned companies surveyed identified inheritance tax on worldwide assets as the main driver of their decisions.
Leslie MacLeod-Miller, chief executive of Overseas Investors UK, met with officials from the Treasury and HM Revenue & Customs in early September to present the findings. The person familiar with the situation said the group has not engaged directly with the OBR.
At the end of September, Reeves was also warned by Treasury officials that part of her plan – specifically to impose an inheritance tax on the global assets of UK residents who indicated their residence their residence abroad – could send large numbers of wealthy taxpayers abroad. .
Faced with a £40 billion funding gap, the government signaled that Reeves was likely to remove the inheritance tax element her plan, though she still expects to raise overall taxes on powerless corporations.
“We have to close a huge fiscal gap, but we will only make actual tax changes and raise money,” said a Reeves ally. “We are not ideological.” Despite the timing of Labor’s withdrawal, one government insider claims that Overseas Investor’s lobbying efforts towards the UK have not been “particularly effective”.
The second phase of the OE report, published last week, found that 95 respondents who were not affiliated with their organization paid an average of £800,000 in VAT in the 2023-24 tax year and an average of £890,000. UK stamp duty for the 2023-2024 financial year. the past five years. Wealthier non-national companies paid more of this tax and respondents said they had significantly divested from UK assets and paused investment and philanthropy out of concern. afraid of increasing taxes.
Foreign Investors for Britain is expected to hold a call with Varun Chandra, Sir Keir Starmer’s business adviser, this week and is updating the Treasury on any data and research any other.
Also this week, the OE plans to publish the third phase of its research, which will address the potential financial impact of a tiered tax regime. A separate report from the free-market Adam Smith Institute last week recommended the introduction of a fixed annual charge of £150,000 for non-states, effective for 15 years, which has the potential to generate at least £12.45 billion in revenue. collected directly every year.
“This is not just something that affects the wealthy,” MacLeod-Miller said. “These funds will go to frontline services such as schools and hospitals.”
But time is running out for foreign investors for Britain’s lobbying efforts. With the Budget less than two weeks away, the most they can realistically hope for is that Labor will scrap the inheritance tax element of its deregulatory reforms while it considers alternative proposals – such as a tiered tax – will take longer to implement.
“The best thing the government can do is to say something on Budget Day to calm people’s spirits and stop the exodus,” said Lawrance at Charles Russell Speechlys. “But they don’t have the data they need to make a firm decision[on the tiered tax regime]. . . They haven’t had enough time to think things through.”
