Wealthy hedge fund managers in London
are expected to lead an outflow of so-called non-domiciled
individuals from the UK in the face of sweeping changes proposed to
the preferential tax treatment given to foreign individuals. Monaco
and Switzerland, both keen to attract the hedge fund industry, are
expected to be among the destinations for these emigrating
financiers.

Investment management consultancy Kinetic Partners warned that many
hedge fund founders will be affected by the tax crackdown as they
are non-domiciles. It claimed there are “dozens and dozens” of
hedge fund managers who are moving at least some of their
operations to Switzerland.

The number of ‘non-dom’ individuals in the UK has almost doubled
since 2003 to an estimated 115,000. The status offers protection
from tax unavailable in any other Group of Seven nation and has
sparked growing criticism.

The worries of the super-rich stem from potential new capital gains
tax bills resulting from the closure of loopholes on offshore
trusts. These measures are part of broader changes affecting
foreigners who are not domiciled in the UK and British expatriates
who frequently visit the UK.

HM Revenue & Customs (HMRC) has released a consultation
document on residence and domicile showing that the tax treatment
will go much further than the proposed levy of £30,000 ($61,452) on
wealthy foreigners. The planned measures will mean that about
15,000 of the wealthiest non-domiciled people will face much bigger
tax bills than the £30,000 fee unveiled in October.

Leonie Kerswill, tax partner at Price­waterhouse­Coopers, said the
proposals include “a significant tightening of the entire
non-domicile tax regime”. This may cause some to question whether
it is worth staying and investing in the UK, she added.

The Treasury has estimated that it is losing £1 billion a year, but
admitted that “this is not a robust estimate of the sort required
for policy making”.

The HMRC consultation paper suggests about 3,000 people would leave
the country in response to the new ‘non-dom’ charges.