Italy's doubling its fee for wealthy foreigners is a reminder that while countries are keen to attract HNW individuals leaving the UK, they aren’t going to make it easy.

As readers know, the UK government intends to shut the centuries-old resident non-domicile system, and replace it with a temporary residence one. The previous Conservative government, in a bid to steal the thunder of the Labour Party, proposed the same course. The devil, as they say, is in the detail: the treatment of inheritances that non-doms have put into trusts. (More on that here.) 

As the UK appears to be tightening screws on high net worth individuals – not just non-doms – by possibly targeting reliefs on pensions, tightening inheritance tax and hiking capital gains tax, I’ve noticed a burst of interest in how other jurisdictions still have the red carpet out for HNW people. Portugal still has its form of “golden visa,” as do Malta and Spain (although with some restrictions following political pushback.) Dubai is also in the mix, and further afield, Singapore (although both places are getting very expensive in terms of residential housing costs). 
 

Italy is calling
And one country that developed a form of non-dom system (although the term “domicile” does not really apply) is Italy. The country might have a spotty reputation for bureaucracy, but it is – at least in the northern part – prosperous, and Italy is famously beautiful, sunny, cultured and full of magnificent food. For a non-dom feeling bedraggled by rainy, politically overwrought Britain, Tuscany, Umbria and other places are calling out. Italy's scheme has been around since 2017 and, outside the orbit of we tax and finance geeks, wasn't widely written about. That's changing. 

But such matters are seldom straightforward. This week, Italy's government approved a measure that doubles to €200,000 ($218,220) per year a "flat tax" applied on income earned abroad by HNW people moving their tax residence to the country.

The Italian scheme has attracted 1,186 relocations to the country so far. The announced hike in the rate suggests that the centre-right administration in Rome, mindful that some non-doms are quitting the UK, has little to lose by implementing this measure. And in this time of "resentment politics," as I might be permitted to call it, loading up more fees on the rich isn't a big voter loser.

Advisors in the space think the hike will not make much difference to people's appetite for choosing Italy. 

"Notwithstanding the increase to €200k, this decision is unlikely to deter many individuals on the basis that the regime itself attracts entrants due to Italy's weather, culture and infrastructure,” Miles Dean, partner and head of international tax at Andersen, said in a note this week. He thinks the Italian tax hike is as much about politics as it is about hard finance. 

Dean also makes this important point: "Despite other countries arguing that increasing house prices are the result of wealthy foreigners, and withdrawing similar tax incentives to curry political favour, it is to be noted that Portugal is considering introducing a variant of the Non-habitual Residence regime. This is proof that such regimes, whilst not directly responsible for raising significant amounts of income tax or capital gains tax, do attract wealthy individuals who contribute to the economy in different ways."

Of course, with these matters, there is a lag between the arrival of a new tax system and its impact on behaviour. HNW individuals, such as entrepreneurs, tend not to act in haste and, even with a worsening tax system in the UK, they won’t necessarily jump abroad without making sure they have not exchanged one headache for another.

A bit of perspective is in order. Remember, as recently as 2023, according to data issued in July this year by the UK government, there was actually a recovery in the number of non-dom taxpayers since the height of the pandemic. The number of newly-arrived non-domiciled taxpayers increased to 12,900 in the tax year ending 2023, up 18 per cent from 10,900 in the tax year ending 2022. In the year ending 2023, the government reckoned there were 83,800 non-domiciled and deemed domiciled taxpayers in total, with combined tax and National Insurance Contribution liabilities of £12.3 billion.

However, we must wait for another year to know what the figures are, as and when the non-dom system finally ends and new regime arises, and further tax measures kick in. Then it might become clearer how many have chosen to swap the UK for pastures new.

In any event, the Italian government has given notice that, while European and other jurisdictions are happy to invite HNW individuals leaving the UK, they aren’t going to give them a cheap admission ticket for that magnicent view across the Tuscan hills.