Some 6,700 millionaires are expected to move to the United Arab Emirates this year, according to Henley & Partners. | Bloomberg
Extraordinary times bring extraordinary taxes. The US Civil War prompted the country’s first income tax; the Cold War led to its first exit tax. Now the UK has come under pressure to impose its own levy on wealthy departees, as the Labour government seeks to plug a £22 billion ($29 billion) budget hole. Several other European countries have exit taxes, including France and Norway, but this would be a big break with the last Labour administration’s “intensely relaxed” attitude to the rich.
Exit taxes are rarely big revenue raisers, especially as they often take the form of a levy on future capital gains if and when assets are sold. Between 2012 and 2017, France’s since-reformed version only directly raised an estimated €140 million ($153 million). They aren’t very efficient, either: Norway is currently adjusting its regime amid complex loopholes and a backlash from entrepreneurs, including one who wrote a catchy song. Hence the UK government doesn’t currently plan to introduce one, the Financial Times reported Thursday citing unidentified government insiders.
But what an exit tax can do is level the playing field at a time of rising global tax competition. And one indicator of what the competition has to offer is the whooshing sound of money heading to places of low, or no, personal tax — like Dubai.
Some 6,700 millionaires are expected to move to the United Arab Emirates this year, according to Henley & Partners, ranking it the No. 1 destination for high-net worth individuals just as the UK is projected to lose almost 10,000 of them. The attractions are sun, sea and no tax on personal income, capital gains, inheritance, gifts or properties. Its new corporate tax, part of a shift to meet global standards and prepare for a life beyond oil, is still low at 9%. UAE efforts to clamp down on illicit finance saw it removed from an international money-laundering gray list this year, though not without criticism from the European Parliament.
The result is a new version of both Chelsea and Mayfair in Dubai and Abu Dhabi, which are pulling in the kind of wealth once synonymous with London. Dubai hosts more than 40 hedge funds managing more than $1 billion, while Brevan Howard is building its Abu Dhabi outpost into a $10 billion hub. There’s a Louvre in the UAE, and soon there’ll be a Guggenheim. Nick Candy, one half of the sibling duo behind the One Hyde Park luxury development, has launched a UAE property venture in a booming market: Dubai has racked up 282 home sales for over $10 million apiece this year. Posh homes are a refuge as well as a roof: 27% of Dubai property is foreign-owned, according to the EU Tax Observatory, likening it to “the new Swiss bank accounts.” Some 70% of Norwegian-owned Dubai homes weren’t reported for tax purposes in 2019, according to a 2022 analysis.
As life gets chillier for the rich in Europe, it’s likely that a spell in the UAE will look good for both lifestyle and wallet: A survey of wealthy UAE expats by Lombard Odier published in May found that almost two-thirds said they aimed to stay for between two and five years. “Dubai was historically a hub for Middle East, African and Indian Sub-continent money,” says Amir Malek, Lombard Odier’s Middle East head. “Then the British and European families started coming in large numbers. Then, after Covid, seeing how well it was handled, the whole world came.”
That’s all great for the UAE, provided escalating conflict in the region doesn’t shatter the optimism. But it’s no doubt leading to sleepless nights in Whitehall. The UK is trying to improve tax justice and equality after years of failing to properly tackle dirty money and tax wheezes. Yet the country has become increasingly reliant on the well-off, with more than 60% of income-tax revenue paid by the top 10% of earners. If lucrative financiers or business owners leave, it gets harder to pay for hospitals and school teachers. Decisions like abolishing “non-dom” foreigner status can have big effects when global tax competition is shifting to the nomadic wealth of individuals — with the UAE in a strong position, as the above chart shows.
Ideally, more global co-operation would be the best way of limiting this kind of hit from tax competition, similar to the agreed crackdown on multinationals. But the chances of an OECD-type global deal on the wealthy look very slim.
(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)
First Published: Oct 11 2024 | 2:30 PM IST