The recent budget statement from the UK government, which saw a furore blow up over payroll taxes on the self-employed, has also highlighted how the current climate is chilly for wealthy individuals.

The UK government has committed the arguably self-inflicted wound of hiking National Insurance Contributions on the self-employed, only to reverse that move after an outcry. Perhaps less noticed in the aftermath of the recent budget statement of Philip Hammond, the chancellor of the exchequer (aka finance minister for non-British readers), is how little was done to alleviate any of the recent hits to high net worth individuals. And such a trend might make offshore jurisdictions appear more enticing, so argues the author of this piece, who is based out of Guernsey. The author is Richard Le Tocq, head of Locate Guernsey, an organisation that promotes the island. The editors here are grateful to share these views; they do not necessarily endorse all views of guest contributors.

As many had expected, the Chancellor’s Spring Budget was a slightly subdued affair without much to indicate a significant departure from current economic policy. Indeed, Philip Hammond’s cautious approach meant the UK’s high net worth individual community received little reassurance ahead of the upcoming non-dom changes in April. The Chancellor’s announcement has therefore been deemed by many, including those within his own party, as consisting of measures destined to impede enterprise. 

The measure that garnered the most attention was undoubtedly his decision (later reversed in a U-turn last week) to raise national insurance contributions for the self-employed. Breaking a Conservative manifesto pledge in the process, the Chancellor proposed an increase to Class 4 NIC, paid by self-employed workers earning over £8,060 ($9,842) a year to 11 per cent by 2019. Given the increasing portion of UK workers who are self-employed, this slightly opportunistic measure may have raised money for the government but went some way in making self-employment a far less attractive prospect. In the political fallout however, Hammond eventually dropped the policy, although it remains to be seen whether the damage caused can be reversed. 

In addition, the plan to slash the tax-free allowance on dividends from £5,000 to £2,000 in April of next year has been viewed as a direct attack on wealth creation and will hit approximately 2.3 million entrepreneurs and investors in 2018-19. This reform could also hamper UK start-ups, who often resort to paying their workers in dividends to ensure commitment to the company and a greater ease of doing business. Commentators have been quick to highlight the change in attitude towards tax and entrepreneurship between Theresa May’s government and that of her predecessor; it would appear the rhetoric has become less pro-business and more focused on gathering tax.

Indeed, the Institute for Fiscal Studies has predicted that the UK’s tax burden will soon soar to its highest level in over thirty years, shattering the UK’s reputation as a low-tax country. As the effects of Brexit are felt, this tax burden could continue to increase. Mr Hammond’s Budget crackdown on legitimate offshore pension transfers with a hefty 25 per cent tax demonstrates how the government is tightening its grip and finding new sources to tax.

Qualifying recognised overseas pension schemes (QROPS) will now be taxed at a significant rate, affecting large numbers of non-doms and British expatriates who have chosen to live offshore. The UK’s banking sector is also being squeezed by HMRC, with the bank levy and corporation tax surcharge collecting £400 million more each year than initially anticipated. In wanting to tackle the UK’s ongoing deficit problems, it is clear that the Chancellor has chosen the route of taxation.

As a result of these actions, the Chancellor’s first and final Spring Budget represented another disappointment for those seeking a strong, tax-friendly message. HNW individuals seem to have been left off Mr Hammond’s spreadsheets and this could have the effect of fuelling disillusionment within the HNW individual community towards the UK and its willingness to meet their needs. The Spring Budget effectively dashed any remaining hopes that changes to the non-dom system would be reconsidered or revised. HNW individuals, and non-doms in particular, will likely have to rethink their options.

The undoing of decades-old, formally established non-dom rules has left many HNW individuals feeling let down. With the taxman bearing down on all types of income and wealth, non-doms are increasingly considering living their lives offshore. In particular, crown dependencies, such as Guernsey, are often viewed as desirable destinations due to the benefits they offer in terms of language, currency, time-zone, location and lifestyle. What really sets these jurisdictions apart, however, is their accommodating environment for HNW individuals.

A good example of what crown dependencies can offer is Guernsey, with an advantageous flat and capped 20 per cent rate of income tax and no capital gains tax, value-added tax or inheritance tax (IHT); the island stands in stark contrast to the UK. In addition to this, Guernsey still delivers sound and trusted public services, with stable governance and a reliable judicial system. The crown dependency’s dependable economy and good fiscal management has not gone unnoticed, with Standard & Poor’s reaffirming the island’s strong AA-/A-1+ credit rating this year. In the current climate, it is not surprising to hear industry voices talk about the increasing number of HNW individuals and businesses considering relocation.

Much like the Autumn Statement, the Spring Budget failed to show adequate appreciation of the UK HNW individuals and the benefits this community provides. In the context of Brexit and global instability, it would have been encouraging for the Chancellor to appeal to wealthy peersons and offer guarantees regarding their future. In the event, however, Mr Hammond decided to increase taxes and leave the non-dom reform untouched. As a result, those working with HNW individuals will not be surprised to witness an increased number of this community consider the benefits alternative jurisdictions can provide.