After disquiet over its tax charge on non-domiciled people in Britain, the UK government is seemingly changing tack and opening up its doors to wealthy migrants. This is seen as another encouragement for ‘mid-shoring’ – a worldwide trend in countries trying to attract the internationally wealthy.
Britain will ease the way for wealthy foreigners and entrepreneurs to come to the country to set up home, according to what private bankers call an important new policy outlined by the UK coalition government.
High net worth individuals (HNWIs) and business people will be exempt from the coalition government’s new cap on non-European migration, to be introduced on 1 April.
There will be no limit on “wealth creators” who can come to Britain and pass a wealth test.
Full details on the proposed policy remain to be spelled out.
But indications are that those investing more than £5m ($8m) in the UK will be promised residency within two or three years, and full citizenship within five.
In addition, these investors would need to live in the UK for only six months a year, down from nine at present, aligning Britain more closely with Canada and Australia, which both have long-standing programmes to attract wealthy migrants.
One motive for the policy, according to experts, will be to help finance Britain’s yawning public deficit.
In an interview with Private Banker International, Nick Hobson, an immigration specialist at law firm Speechly Bircham, said the new policy was very positive.
“It’s much friendlier towards wealthy individuals,” he said.
The current Tier 1 and Tier 2 arrangements for the wealthy who come to Britain will presumably be abolished under the new strategy. Essentially, those old rules required investors to have £2m in net assets, enabling them to apply for a British passport after five years.
Hobson forecasts that the measures would prove popular with those wishing to come to Britain, although he could not estimate the likely numbers to apply under the new scheme.
“We have seen a steady increase in inquiries (for residency) since the coalition government was elected this year,” he said. “We have had a really varied response, with inquiries from everywhere and from a lot of individuals.”
Attractive to investors from emerging markets
The measures are expected to be especially attractive to nationals from China, India and other parts of Asia – reflecting the fact that many high net worth investors from emerging markets already favour London as a vacation and business centre.
Many have acquired high-end real estate in London and elsewhere.
Some private bankers think that the measure is, in part, aimed at thwarting countries like Switzerland, which have made a big play of attracting the wealthy with low tax, now that the UK top tax rate is 50%.
Speechly’s Hobson is not so sure.
“I think it is more driven by the recession and the UK requirement for deficit financing,” he said.
It is clear that Britain and other nations, such as Switzerland, are involved in a competitive race to attract the internationally mobile rich.
Growth of mid-shoring
In private banking circles, this phenomenon is being called “mid-shoring”, as countries keen to encourage capital to flow into their economies make concessions after the global clampdown, co-ordinated by the OECD, on full offshore banking.
HNWIs are given the opportunity of putting some of their wealth onshore and gaining valuable residency rights, but keeping the remainder either offshore or in their original countries of origin.
The number of rich coming to Britain, as non-domiciled residents, has fallen by up to 25% since the rules covering such foreign investors were toughened last year. That included introducing a £30,000 annual charge on “non-doms”.
Significant boost to UK private banking?
Meanwhile, experts are reluctant to say whether the new immigration relaxations for the rich would help bring in significant new business for private banking.
The rule changes are likely to attract 1,000 wealthy migrants in the first full year. Currently, about 300 wealthy migrants come in annually compared with Canada, which attracts about 3,000.
Private bankers say that a big influx of wealth to the UK is likely to come from Ireland, whose economy has crashed and whose banks are in major difficulties. As Ireland is an EU member, its nationals face no restrictions on relocating to the UK.
“There is still a huge amount of cash in Ireland, much of it made in real estate before the big property cash, and which is flowing out in order to find a safer home,” one banker said.
The Channel Islands could also enjoy a windfall from the new immigration rules.
Michael Betley, managing director of the Trust Corporation of the Channel Islands, believes the islands are more likely to benefit from the inward migration of wealthy foreigners wishing to undertake “pre UK arrival tax planning” to minimise their UK tax exposure ahead of taking residency in the UK.