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UK TAX
Weekly News 27th JAN
After the autumn budget, number of millionaires fleeing UK ‘spikes
According to research firm New World Wealth, around 10,800 individuals with over $1 million (approximately £821,500) in liquid assets left the UK in 2024, marking an increase of more than 150% compared to 2023. Additionally, a total of 78 centimillionaires (individuals with $100 million or more) and 12 billionaires also “fled” the UK.
Most of these departing millionaires have opted to relocate to other European countries like Switzerland and Italy, or to the UAE.
The outflow of UK millionaires increased overall in 2024, but the pace of growth reportedly accelerated significantly after the Labour Party came to power this summer. One of the primary factors driving the exodus is Labour’s decision in the Autumn Budget to abolish the non-domicile tax regime, replacing it with a residence-based tax system. This change means individuals would face “global taxation” on any income or gains earned outside the UK.
Chancellor Rachel Reeves stated that the move is expected to generate nearly £13 billion in additional revenue over five years.
However, the Office for Budget Responsibility (OBR), an economic watchdog, estimates that 12% to 25% of high-net-worth individuals will choose to leave the UK following the changes. A survey by the Oxford Economics Institute, involving 700 individuals, found that nearly two-thirds are considering leaving the UK due to the revised tax rules. Under the global taxation system, the Treasury is projected to lose £1 billion annually in revenue.
Critics argue: “The abolition of the remittance basis is indeed concerning. While it may have little impact on ordinary migrants, for those with significant wealth and global income, it will hurt UK businesses, jobs, investment, economic spending, tax revenue, and charitable contributions.”
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UK faces ‘stagflation’ warning amid rising costs and faltering growth
A survey of businesses has revealed that while the UK’s private sector experienced slight growth in the early weeks of the year, business confidence continues to decline amidst warnings of rising inflation and job cuts. Economists have cautioned that the UK may be entering a period of “stagflation” – a combination of economic stagnation and inflation. This phenomenon typically involves three key elements:
- Stagnant or Slow Economic Growth: Economic activity slows significantly, with GDP growth remaining sluggish or even contracting.
- High Inflation Rates: Persistent increases in price levels, driving up the cost of living and eroding purchasing power.
- High Unemployment: Reduced production and investment by businesses lead to a worsening job market and rising unemployment rates.
The preliminary reading of the S&P Global UK Composite Purchasing Managers’ Index (PMI) for January 2025 was 50.9, up from December’s 50.4.
This figure, a vital economic indicator reflecting the state of UK business activity, combines data from the manufacturing and services sectors and is a key measure of the economy’s health. Although the index reached a three-month high and exceeded economists’ expectations, surveyed businesses expressed concerns about declining sales leading to layoffs.
These concerns have been exacerbated by Chancellor Rachel Reeves’ recent increase in employer taxes, amplifying fears of stagnant growth and a weak labour market. Business costs have continued to climb, with input cost inflation reaching its highest level since May 2023, and business confidence has now declined for the sixth consecutive month.
Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, stated, “Renewed inflationary pressures indicate the economy has entered a stagflationary phase. January’s subdued business activity, coupled with ongoing pessimism about future prospects, reflects a worsening demand environment and falling order volumes. The Bank of England and the Treasury face a challenging dilemma over how to respond.”
However, RSM UK economist Thomas Pugh remains optimistic about the UK’s growth prospects in 2025.
He said, “With the Autumn Budget measures taking effect and clarity on changes to US tariffs, we have strong reasons to expect improved confidence in the months ahead. Additionally, the worst turbulence in the UK government bond market seems to have subsided. Should the Bank of England proceed with the anticipated interest rate cut in early February, this will further stabilise markets. Fresh spending or investment could provide a significant boost to the economy.”
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EU ‘could consider’ UK joining pan-Europe customs scheme
Since the Labour government took office, efforts have been underway to rebuild trade and national security cooperation between the UK and the EU. As part of this initiative, the EU’s new trade chief responsible for post-Brexit negotiations told the BBC, “We are considering the creation of a pan-European (customs) area,” and mentioned the idea of the UK joining the Pan-Euro-Mediterranean (PEM) Convention.
The PEM Convention is an international trade agreement aimed at promoting free trade and economic integration between Europe and Mediterranean countries through harmonised rules of origin.
Downing Street has stated that such an agreement would not cross the UK’s post-Brexit “red lines” in its relationship with the EU. Instead, it would focus on reducing trade barriers, particularly by harmonising customs rules and procedures to facilitate freer movement of goods.
Under the UK’s Brexit deal, goods sold by the UK to the EU are tariff-free as long as they use a certain proportion of materials originating from the UK or the EU.
For instance, if a UK clothing manufacturer produces garments using textiles primarily sourced from Turkey (which is not an EU member) and sells those garments to the EU, the importing company would face tariffs. However, if the UK were to join the PEM Convention (of which Turkey is a member), the company purchasing these products would no longer need to pay tariffs.
The BBC has learned that the UK government has begun consulting businesses about the pros and cons of joining the PEM Convention, although no final decision has been made.
Additionally, UK Prime Minister Keir Starmer is scheduled to attend an EU summit next month focused on defence and security, during which the two sides are expected to hold further discussions on these matters.
