UK experiencing ‘second wave’ of HNWIs leaving the country

The UK is experiencing a ‘second wave’ of high net worth individuals (HNWI) leaving the country in response to concerns over growing inheritance tax (IHT) exposure, according to Utmost global wealth specialist, Marc Acheson.

Acheson said the first wave of departures consisted of non-doms who left following the abolition of the non-dom regime and with previously excluded property trusts being brought into the scope of IHT.

The extension of IHT to global estates was described as a highly emotive issue and deal breaker for many HNWIs, especially those whose wealth had typically been generated or inherited outside the UK.

The switch from a domicile-based regime to a residency-based system has accelerated decision making among internationally mobile HNWIs, Acheson argued, as they now have certainty that they must maintain non-UK tax residency for 10 years to avoid IHT, driving HNWIs to start making relocation plans earlier.

A second wave of HNWIs leaving the UK has now begun among long-term residents, entrepreneurs and business owners, primarily driven by the application of IHT to family businesses, according to Acheson.

While assets could previously be passed down between generations outside of IHT under full Business Property Relief, those reliefs have now been capped, and many business owners were reportedly looking to exit before they crystalise any gains or trigger future IHT charges.

Acheson also pointed to the inclusion of most unused pension pots and death benefits within the scope of IHT from April 2027 as a driver of HNWIs leaving the UK.

“When we speak with clients, the principal reason they point to for reviewing their UK residency is the expanding scope of IHT,” Acheson stated.

“This is a tax that raises relatively little revenue compared to the challenges and disproportionate behavioural consequences it creates.

“Just recently it was reported that HMRC is consulting on the extension to the Uncertain Tax Treatment regime - introduced in 2022 for large businesses - to private individuals as part of efforts to reduce the tax gap. This is on top of further recent reports suggesting that the ‘Mansion Tax’ may not generate the revenues projected.

“The cumulative impact of all this is that the UK is driving wealth creators away – both foreign and now domestic. This matters because the economy cannot afford to lose these individuals, who are the largest contributors to the tax base, and once this cohort leaves it is very hard to replace them.

“The challenge the government has is that the battleground for attracting wealth is highly competitive.

“While the UK has become less competitive as a destination for wealth, countries such as Italy and Switzerland have been working tirelessly in the background to lure this wealth away by offering attractive regimes as they seek to broaden their tax bases, and have become very successful in doing so.”

---