UK government proposals to abolish permanent non-domiciled status and reduce the status timeframe to 15 years could lead to “a mass exodus of older money”, a private client lawyer predicts.
Ashley King-Christopher, private wealth and family office partner at Charles Russell Speechlys, said the change to the non-domiciled status was “a surprise that is going to be unhelpful for older money”.
However he added that corporation tax changes could boost the attractiveness of London as a family office centre.
UK Chancellor George Osborne has proposed that from April 2017, anybody who has been resident in the UK for more than 15 of the past 20 tax years will be deemed UK-domiciled for tax purposes.
It will no longer be possible for somebody who is born in the UK, to parents who are UK domiciled, to claim non-domicile status if they leave, but then return and take up residency in the UK.
“It's a roll of the dice and the danger is that these older non-doms could go to places like Spain and other jurisdictions that don't require you to pay taxes on your worldwide income,” said King-Christopher.
The non-domiciled regime has been criticised by those concerned that a small group of very wealthy people have benefited from non-domiciled status that is not open to UK residents.
Nick Bryer, Oxfam's Head of UK Policy and Campaigns, said pledges to end permanent non-dom status were steps in the right direction.
“The promise of an extra £5 billion is welcome but still more needs to be done to ensure wealthy individuals and companies pay their fair share both here and in the world's poorest countries,” he added.
David Bell, senior wealth planner at Lombard Odier, said abolishing the permanent non-domiciled status will make the UK a less attractive destination for wealthy individuals, particularly in a competitive market where countries are looking to attract such tax payers.
“Switzerland, Monaco and other countries could benefit from making UK resident non-domiciled individuals feel less welcome.”
The UK Treasury estimates that the changes to non-domiciled rules and abolishing the ability to avoid inheritance tax by holding UK property in offshore structures will raise £1.5 billion ($2.3 billion) over the next five years. A consultation document on the proposals will take place after September.
Rachel de Souza, tax director, RBC Wealth Management said long term, residents will need to weigh the benefits of remaining in the UK against the additional tax cost and the UK was bound to see some people leave.
King-Christopher said, on a positive note, that the proposed changes to UK corporation tax rates will add to the attraction of establishing a family office in London for international families.
The UK corporation tax rate is 20% - already the joint lowest in the G20 – and will fall to 19% in 2017 and 18% by 2020.
“Mayfair and the West End have recently experienced an influx of single and multi family offices servicing the multifaceted requirements of high net worth international families, from concierge to asset management, and investment banking,” he said.
“The further reduction in corporation tax rates will make London even more attractive as a base for such international family offices, their senior level executive, and professional staff. This will further cement London as the private wealth and family office advisory team location of choice for the global assets and transactions of many international high net worth families.”
King-Christopher said he was currently advising four international families on setting up their family offices in London, including one that was relocating from Switzerland.