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Does it Really Matter If members of the Rich List Quit the UK?
Flicking through the pages of our national newspapers – tabloids and broadsheets alike – one would be forgiven for thinking that Britain has a fascination with money.
Yet discussing one’s own wealth or that of others used to be considered a very un-English pastime.
However, in recent years, the focus with the lives of celebrities has extended from their professional exploits – the films, the music and the football – and their wardrobes to their bank balances.
That money-mindedness has also made stars of those individuals fortunate, industrious and creative enough to have amassed considerable assets through inheritance or their sporting, artistic and commercial endeavours.
It’s a development which sees our collective attention piqued each year by the publication of the Sunday Times’ Rich List, a ranking of Britain’s wealthiest individuals.
This year’s list was accompanied by a news story suggesting that some of those with the financial means to make the cut are sufficiently worried about the UK’s fluctuating political circumstances that they’re considering moving – themselves or their assets – out of the country to protect their wealth.
More than the economic buffeting generated by the as yet inconclusive discussions with Brussels about Brexit, it seems that they are particularly concerned that the Labour Party might take power in the event of a General Election.
Mr Corbyn “would smash Britain’s enterprise-friendly culture”, they claimed, “if he became Prime Minister.
Social media was highly critical in its response, echoing the business-bashing handed out to Sir Jim Ratcliffe, the founder of the chemical giant Ineos and one of the UK’s very richest individuals, following his decision to relocate to Monaco in order to cut his tax bill.
Of course, the Rich List story is not the first to question the nature of Jeremy Corbyn’s likely relationship with business leaders and will probably not be the last either.
However, I reckon that those expecting him to as severe as the late former Labour Chancellor Denis Healey (Labour’s Chancellor of the Exchequer in the 1970s, who was reported to have vowed to “tax the rich until the pips squeak” and led to a mass exodus of individuals and, ironically, huge growth in the tax avoidance industry) might be mistaken.
The proximity to power and the pragmatism required in high office tend to temper even the most fervent of beliefs. Mr Corbyn and his Shadow Chancellor, John McDonnell, will surely realise the need to bring at least some of their corporate sceptics onside.
After all, HMRC’s latest annual report made clear the enormous contribution made by the country’s wealthiest citizens.
The Revenue detailed that £235 billion of the total taxes which it received during the last full financial year (£605.8 billion) came from companies or wealthy individuals.
Furthermore, large businesses (defined by HMRC as those with turnovers of more than £200 million) employ some eight million people, many of whom will be eligible to vote in an upcoming election.
If one looks at Amazon, much maligned for it’s approach corporate tax, paid UK wages of £500m (subject to PAYE) for its last reported accounting period.
Failing to woo the UK’s captains of industry would potentially mean losing substantial cash and supporters, something which might well lie behind Mr McDonnell’s so-called ‘Tea Offensive‘.
He will understand that large businesses run by the sort of men and women who feature on the Rich List don’t need their principals immediately to hand all the time. In this age of digital communication, it doesn’t really matter whether bosses are in Birkenhead or Bali.
If Sir Jim Ratcliffe and his peers choose to take up residence outside the UK their businesses will most likely remain in the UK contributing significant corporation tax and payroll taxes to the exchequer.
But what about personal taxes?
It has been a long standing practice that shareholders in such companies can obtain a tax advantage of being based overseas – whether on the sale of the shares (no CGT) or on the paying of a significant dividend free of income tax.
However, the ability to exploit both of these is fettered by the requirement to be non-resident for five years. If one becomes UK resident again in that period then the tax liability is resurrected.
In respect of income tax, this 5 year rule was only introduced in 2013. As such, it is not a loophole. It is exactly what Parliament has decided is the right amount of time for someone to lose their membership of the UK tax club (and even then they will be subject to UK tax on most forms of UK income).
It does not seem fair that, just because someone has lived in the UK at some point, their liability to UK income tax remain open ended. The line must be drawn somewhere.
Of course, entrepreneurs like Ratcliffe and the Treasury will be acutely aware of both the time and territorial limits on taxation, something which only a switch to a US-style system – making where someone lives irrelevant for tax purposes – would resolve.
Alternatively, one could decide that dividends from UK companies, like most other UK income sources, are taxable regardless of where one resides. However, this would clearly have an impact on overseas investors in UK companies and, consequently, whether companies want to stay in the UK (and contribute to the UK’s coffers as set out above).
What is clear is that Mr Corbyn and his advisors will know that they have to build bridges with the City if their ambitions of taking the reins of power are to materialise.
If you have any queries about this article on the rich list, or tax matters in general, then please get in touch.