The UK’s wealth advisory profession is braced for a continued influx of high net worth French people fleeing higher taxes on income and wealth from the new Hollande regime, but it is an open question as to how much emigration there will be.

The UK’s wealth advisory profession is braced for a continued influx of high net worth French people fleeing higher taxes on income and wealth from the new Hollande regime, but it is an open question as to how dramatic such a move of people and money will be.

For many years, central London has hosted a large expat French population, often composed of finance industry professionals and their spouses, as well as French students defying the indifferent British weather to study English. According to whichever studies can be believed, there are up to 400,000 French citizens living in London – a factor pushing residential prices to vertiginous levels in areas such as South Kensington. This influx has made London the sixth largest “French” city.

The question, though, is how much fresh business is entering the capital due to the top 75 per cent tax rate on annual incomes over €1 million (around $1.31 million). A number of large European banks contacted by WealthBriefing pointedly declined to comment on the record or claimed that nothing unusual was going on in terms of inflows. The legal profession has been rather more voluble, however.

“We’re seeing a lot of interest; in fact we’ve seen three French clients in the last few weeks. And they say to us, 'There is no way we’re going back while we have these big tax hikes',” Alex Ruffel, partner at Berkeley Law, told this publication.

Her firm specialises in advising ultra high net worth clients on issues of domicile and residency in the UK, an area of business that has grown steadily in recent years with enquiries from the Middle East, the former Soviet Union, and parts of Europe. And now French people are knocking on Britain’s door.

“These people are not just expat returnees [to the UK]. They tend to be in areas such as banking, medicine and the law. They still see our property market as quite attractive,” Ruffel said. “What’s more, they are not just coming here for two years…but maybe five, 10 or possibly more years,” she said.

Big movers

Perhaps the most dramatic example yet of a rich French émigré is Bernard Arnault, the owner of luxury brands company LVMH; he has attracted attention by declaring he is applying for Belgian nationality.

In the case of a move to the UK, a move across the English Channel is not a simple matter, however. At an Investec Trust seminar this week attended by this writer, lawyers pointed out that the UK’s complex general anti-avoidance rule (GAAR) regime, coupled with the country’s current 50 per cent top tax rate (due to fall to 45 per cent next year), meant that entering the UK was not a simple move.

And France has also tightened disclosure rules on trustees and others connected to vehicles such as trusts, developing an increasingly worldwide approach to tax that in some ways mimics the expanse of taxing controls sought by the US under the recently enacted FATCA Act. A person can leave France, but that does not sever the links.  

Even so, lawyers do expect to be approached by French clients.

“There are a number of alternative locations [for French émigrés] which may prove popular, including the UK. The UK has a fully legislated and relatively favourable tax regime for inpats who have non-domiciled status,” Steve Griffiths, head of tax and wealth structuring at Coutts, told this publication.

“Basic steps will be to ensure their investments are held offshore and typical UK equities and bonds are avoided in their portfolios. Assuming non-domiciled status is retained, these individuals should be exempt from UK tax on offshore income and capital gains if held outside the UK. Resident non domiciled investors would normally be advised to retain a pot of capital which can be brought to the UK without a tax charge to fund their lifestyle if they have no employment income to survive on,” he said.

“It is early days but it would not be surprising if more French nationals saw London as a good place to be for a couple of years,” Geoffrey Todd, a partner in the private client and tax team at Boodle Hatfield, told this publication.

"Significant French businessmen are looking to other citizenships; competition in this and other areas like tax is not just a global phenomenon but a European one as well,” said Ashley Crossley, chair of Europe and Middle East Wealth Management at Baker & McKenzie.

No compromise

The socialist government of Francois Hollande has so far refused to budge on making top earners pay more to deal with a severe fiscal shortfall. Hollande has vowed to raise €10 billion from big business and €10 billion from wealthy households; the 75 per cent rate is up from the previous 41 per cent.

Boodle Hatfield’s Todd cited the case of the LVMH owner, who is thinking of jumping across the border to Belgium (a country not normally thought of as any sort of tax haven).

“Is this the beginning of a mass exodus? Well, probably not, because applying for Belgian nationality in itself will not save him [Arnault] tax, and he has said he will continue to pay French tax. It could be read as a warning shot to the government though, if it is a step towards giving up French citizenship and relocating to Monaco (which would only save him tax if he were not a French citizen),” Todd said.

“Our experience in the UK when the 50 per cent [UK income tax] rate came in was that there was a lot of noise about a mass exodus, but in truth it did not materialise. Where people can move not only themselves but also their businesses easily, some do so. So we saw some hedge funds and those running them move to Switzerland, for example,” he said.

“For the French, and people from other European countries going through the debt crisis, and people in North Africa and the Middle East where there are far more serious problems, London is seen as a safe haven, both for their money and for them personally,” he continued.

It is possible, as with the Mitterand administration in the early 1980s, that Hollande’s ideological zeal may have to be tempered if his tax policy backfires. But given the mood of the times, such a reverse is unlikely to happen soon. In the meantime, London’s wealth industry looks set to write plenty of Gallic business in the next few years.