Spring Budget leaves HNWIs considering their options

Richard Le Tocq, head of Locate Guernsey, discusses the chancellor’s approach to high net worth individuals, and why relocation is increasingly attractive to HNWIs

Despite the rather embarrassing climbdown on National Insurance Contributions (NICs), on the day, Philip Hammond’s Spring Budget represented a rather mild affair with little to indicate any major departures from the government’s current economic policies. Perhaps rather predictably, the fairly negative perception of the government felt by many within the HNWI community has therefore endured. Indeed, ahead of the upcoming non-dom changes in April, many within this highly valuable demographic were hoping for a degree of comfort from the chancellor. Unfortunately, such desired reassurance was far from forthcoming, leaving many HNWIs increasingly considering the prospect of relocating to alternative jurisdictions. With the most vocal criticism raining down on the chancellor from his own backbenches, many commentators felt that this Budget has done more to obstruct business than bolster it.

By far the most controversial Budget measure has been the decision to increase NICs for the self-employed. The policy, which would have broken a Conservative promise from its 2015 general election manifesto, proved so poisonous that it had to be abandoned one week after it was announced. The proposal would have meant an increase to 11% of Class 4 NICs by 2019, paid by self-employed workers earning more than £8,060 per annum. Critics felt that this was a somewhat opportunistic policy aimed at raising money for the taxman at the expense of the UK’s growing self-employed population. As a result, a number of experts have picked up on the contrast in approaches between David Cameron and that of his successor, with both the language and policy direction of Theresa May’s government decidedly more focused on collecting tax revenue for HMRC.

Whilst overshadowed by the NICs proposals, the other particularly contentious announcement to come out of the Budget was that in April 2018 the tax-free allowance on dividends will be cut from £5,000 to £2,000. Poorly received across the business community, the measure could impede the growth of UK start-ups that frequently use dividends as a means of paying their workers. Paying workers in this way has the advantage of fostering loyalty to the business and enhancing flexibility. By 2018-19, the reform will affect 2.3m entrepreneurs and investors. It should therefore not come as a surprise that this tax has been viewed as another burden on wealth preservation and creation.

QROPS hit by Spring Budget

Indeed, the fact that the bank levy and corporation tax surcharge are raising £400m a year more than previously expected, seems to demonstrate how both the treasury and government are quite happy to keep up the fiscal pressure. In his Spring Budget, the chancellor also found new revenue streams in the form of qualifying recognised overseas pension schemes (QROPS). Going forward, QROPS will be taxed at a weighty rate of 25%, indicative of a clampdown on offshore pension transfers that will undoubtedly represent a hit to the large community of British expatriates and non-doms living offshore. With this considered, it is clear that the government is gradually choosing the path of taxation in order to tackle its troubling spending deficit.

When it is also considered that the Institute for Fiscal Studies has recently forecast the UK tax burden to grow to a 30-year high, this Budget has surely done much to diminish the idea of the UK as a low-tax jurisdiction. The extent to which HNWIs were a considered part of Mr Hammond’s thought process is unclear, but when taken with the Autumn Statement, the Spring Budget appeared to reveal that the HNWI community is not a major consideration for the chancellor.

Appeal of the crown dependencies

With a large number of non-doms soon to be left facing substantial tax bills, many are now considering living their lives offshore. As a result, crown dependencies are increasingly being considered attractive alternatives due to the benefits they offer in terms of tax regime, location, lifestyle, currency, language and time-zone.

Crown dependencies have a lot to offer. Take the example of Guernsey: there is no capital gains tax (CGT), value-added tax (VAT) or inheritance tax (IHT) and only a flat and capped 20% income tax rate. Unlike many other the tax-friendly jurisdictions, public services in Guernsey are robust, with stable governance and a reputable judicial system. Indeed, the island’s excellent fiscal management was recognised by credit rating agency Standard & Poor’s, which maintained its strong AA-/A-1+ rating recently.

Looking ahead

Coupled with the ongoing Brexit fallout, the policy direction of the government has left the HNWI community contemplating relocation in ever-greater numbers. Although the chancellor had the opportunity to take steps to reassure HNWIs and offer much-desired guarantees for their future, in the event, Hammond opted for tax rises and to leave the non-dom reform untouched. Those working with the community will therefore not be surprised to witness an increased number of HNWIs consider the benefits that alternative jurisdictions can provide.

Richard Le Tocq is head of Locate Guernsey.

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