The UK government needs to introduce new tax enticements to stem the outflow of high net worth individuals (HNWIs) and capitalise on interest from wealthy US investors looking to move to the UK, according to HaysMac.

The law firm highlighted a recent report that showed London had fallen out of the top five wealthiest cities list as HNWIs sought to leave the country amid changes to the non-dom regime and tax rules.

However, it also pointed to the parallel trend of wealthy US citizens exploring a move to the UK due to the uncertainty created by the Trump administration.

HaysMac partner, Katharine Arthur, who advises numerous HNWIs including non-doms, said she had seen firsthand the impact the abolition of the non-dom regime has had, with HNWIs leaving the UK “in droves”.

On the other hand, there was a corresponding increase in US citizens looking to take advantage of the new tax regime in the UK, which exempts offshore income and gains for the first four years.

Arthur argued that while this temporary uptick may be due to the attractive temporary regime, greater enticement was needed to truly stem the flow of wealth leaving the UK and ensure these wealthy US investors stay in the UK.

She warned that, without permanent changes, the UK could end up becoming a ‘stop-gap’ for investment.

“There’s an interesting parallel movement taking place in the UK from wealthy investors,” Arthur stated.

“While many long-term UK resident US citizens - and others - are now leaving as a result of the abolition of the non-dom regime, there’s a corresponding increase from US citizens considering a move to the UK.

“There is an increase in wealthy investors considering a move to the UK to take advantage of the new regime, which exempts offshore income and gains for the first four years. This is attractive, but these people are widely seeing the UK as a short-term stop-gap rather than a long-term home to invest in. The country and its finances would benefit from extending this four-year grace period.

“With the wealthy continuing to leave in droves, some greater enticement is needed to convince them to stay.”

Arthur noted that international competition to attract the wealthy, along with their relative mobility, meant that they will simply go to more tax-friendly jurisdictions as a result of recent tighter measures, and the long-term effect of abolishing the non-dom tax incentives is likely to be reduced receipts for the Treasury overall.

“Citizens of the US are generally subject to US taxes on their worldwide income, wherever they are tax resident, so a residence or asset move to the UK is more likely driven by asset protection rather than tax saving,” she continued.

“The particular circumstances are key, as is the application of the US/UK tax treaty to ensure that the same sources of income and gains are not taxed twice.

“Many will be considering the use of trusts, and other structures, which can also assist with asset protection. This is especially important for legacy planning as the UK Inheritance Tax exemption is so much lower in the UK, only covering £325,000, than it is for estate tax in the US, which extends to $5m.”

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