With the top rate of income tax at 45% and employees national insurance of 2%, wealthy individuals can lose almost half of their pay if they are domiciled and tax resident in the UK.
We have for many years wanted to attract wealthy foreigners to settle in the UK and therefore offered non-doms that they only pay tax on their non-UK income if it’s brought into this country. Even after 10 years of UK residency, the remittance basis of taxation can continue on payment of a flat rate charge. This has been successful for many years in attracting foreigners to settle in the UK.
Now other EU member states are competing to attract wealthy foreigners to settle in their countries. The UK already has to compete with its own particular draw backs such as the climate and now it has to compete in taxation terms too, when places such as Portugal, Italy and Malta offer significant tax breaks. For example, foreigners can spend their first 10 years in Portugal without having to pay any tax on their pensions or investment income.
Until there is an international effort of global tax authorities trying to set a level playing field which taxes the wealthy at a rate of say 40-50%, then individual countries will compete to attract wealthy individuals to their shores. The UK has its own offshore tax havens and these would have to be included in any global harmonisation to set a level playing field. Until then, the wealthy will look at each country’s advantages and disadvantages when setting up their home and this will include the tax rates that will affect them.
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The views expressed in this article are the personal views of the Author and other professionals may express different views. They may not be the views of Lambert Chapman LLP. The material in the article cannot and should not be considered as exhaustive. Professional advice should be sought in connection with any of the issues contained in the article and the implementation of any actions.