The argument against tax rises for the super-rich has almost always been undisputed: charge them more and the very wealthy will flee, is how the theory goes.
Take Labour’s ascent to power in the UK as an example. In the run-up to the political party’s July victory after more than 14 years of Conservative rule, the warnings about tax rises if the left-leaning party was elected came thick and fast. The same was true in the US when Joe Biden replaced Donald Trump in the 2020 presidential election.
Even before British voters went to the polls, one adviser to wealthy families, Henley & Partners, predicted that the UK would see an “unprecedented” net loss of 9,500 millionaires this year — second only to China worldwide, and more than double the 4,200 who left Britain in 2023.
This exodus, as the firm sees it, would be largely down to higher taxes. “Even before the starting gun was fired on the UK’s July 4 general election, it’s apparent that the wealthy in Britain were already leaving,” a Henley & Partners report read.
More departures, they said, would come as a result of Labour’s plan to further clamp down on the UK’s “non-dom” rules, as well as its intention to add 20 per cent to private school fees by removing the sector’s VAT exemption.
And it is not just Britain’s wealthy that are said to be reacting to tax rises. Dominic Volek, group head of private clients at Henley & Partners, says 2024 is “shaping up to be a watershed moment in the global migration of wealth”.
He says: “An unprecedented 128,000 millionaires are expected to relocate worldwide this year, eclipsing the previous record of 120,000 set in 2023. As the world grapples with a perfect storm of geopolitical tensions, economic uncertainty and social upheaval, millionaires are voting with their feet in record numbers.”
But are they? The wealth manager’s numbers are based only on forecasts, while a study by the London School of Economics finds that the rich are, in fact, very unlikely to relocate because of tax rises alone, particularly those living in some of the world’s largest cities, such as New York, London and Tokyo.
Based on interviews with 35 high-net-worth individuals, the academics at LSE reason that tax havens are too sleepy, too bereft of cultural activities and, ultimately, too boring for the rich to seriously consider if taxes in their home countries rose.
Andy Summers, one of the authors of the report, says: “Of the people we interviewed for this research, not one stated that they were planning to emigrate or immigrate for tax reasons. In fact, the vast majority of interviewees were clear that they would never consider moving for tax reasons.”
The responses gathered by the LSE during their interviews provide interesting colour as to why that might be the case.
For one of the wealthy individuals spoken to by academics, it was clear that potential boredom was a blocker.
They told researchers: “[People I know] who moved to the Bahamas were bored to death. Sun, sea and sand. OK, it’s great for a couple of weeks to recharge the batteries, but after a while you think, ‘I’d quite like to go and watch an opera.’ Well, you can forget that, there’s no theatre in the Bahamas.”
Another said: “Can you imagine anything worse than going to a tax haven? Some tiny little place where there are just people with yachts and servants. I want to live in a vibrant economic climate, where there’s room for innovation and where people are inventing things.”
A third respondent added: “Move to the Middle East and live in a gated community? No. I have never found that attractive in any way.”
So, what is behind the difference between the perception and reality of tax rises when it comes to the rich relocating. “Good PR”, according to one wealth manager, who asked to speak off the record.
He says it is very useful for a picture to be painted of the wealthy leaving if governments go after them with higher taxes.
“A lot of the talk about this is meant as a deterrent, a threat to governments to watch out, to be mindful that they could lose valuable tax receipts if they try to make life more difficult for the rich. But it’s more of a warning shot.”
The LSE covers this in its paper, and partly blames media reporting for perpetuating the line that the rich would leave.
Summers says: “The wealthy voices spotlighted in the media are typically highly selected. Sometimes, this is because those interviewed are already known to be outspoken about tax, but more often it is because their perspective has been provided secondhand by tax advisers and other wealth management professionals. These intermediaries are both more likely to encounter individuals who are indeed thinking of moving, and more likely to interpret their motivations through the lens of tax.”
He adds that media reports into migration often appear in the political context of proposed tax rises, “where wealthy interviewees may have a vested interest in threatening to leave”.
He says: “In contrast, our interviews took place in a comparatively ‘policy-free’ context, where we began with a much more open-ended discussion with wealthy individuals about what they value when making decisions about where to live. It was only once tax had been mentioned spontaneously that we pivoted to discussing tax as a potential factor.”
Someone who knows a lot about wealth is UK-based billionaire businessman John Caudwell, who founded the now defunct mobile phone company Phones 4U.
Caudwell, who appears in 109th position in the Sunday Times Rich List with an estimated fortune of £1.54bn, is well placed to say whether high taxes would force him out of the UK, where he has homes in London’s Mayfair and Staffordshire.
He told FT Wealth: “An increase in taxes would not make me leave the country unless that increase was extreme and unjustified. If we are talking hypothetically about, say, five percentage points on the higher rate tax band, why would anyone leave for that reason? If so, they would most probably have already done so.”
Caudwell, who gave £500,000 to the Conservative party before the 2019 general election, admits he did say he would quit the UK if the then opposition leader Jeremy Corbyn rose to power at the time Caudwell made his political donation. Corbyn had plans to renationalise the country’s utilities and raise capital gains tax, among other policies.
“I have, in the past, said that I may leave the UK, but that was not for tax reasons. At that time, just prior to the 2019 general election, I deeply feared for the country if Corbyn and his shadow chancellor John McDonnell were in charge. That would have been disastrous. My pride in Britain would have been damaged, and I may have been lured by the sun, sea and mountains elsewhere.”
Henley & Partners’ director of tax services, Peter Ferrigno, tries to qualify this. He says a move is never just about a change in tax, but that often the tax change is a trigger that starts the discussion “or is the last straw that breaks the camel’s back”.
Ferrigno references the mood in Canada. He says there is an appetite among the rich to leave because of proposed rises in capital gains taxes, but that relocations are also heavily influenced by a dislike for prime minister Justin Trudeau. “People are in a hurry to get out before [the tax rises] cut in,” he says. “But there’s usually a fair few anti-Trudeau comments that come with this, so it seems it’s not only a tax issue but a perception that they don’t like the way the country is changing.”
Returning to the topic of whether or not “good PR” can make governments believe the rich will flee at the first sign of fiscal tightening, Caudwell says: “It may have suited some with a political agenda to encourage headlines about a potential exodus from the UK of the wealthy.
“Taxing the rich is a nuanced subject, in my opinion, and, as always, the devil is in the detail. The new Labour government will need to get the wealthiest in society on side to achieve economic growth.”
He is also quick to highlight that the very wealthy are more than just rats, as the analogy goes, that might jump ship at the first sign of trouble. “We struggle historically in the UK with our relationship with the rich and, very often, for ideological reasons, they are unfairly demonised, rather than made to feel proud for paying tax, creating jobs and contributing to society.”
This article is part of FT Wealth, a section providing in-depth coverage of philanthropy, entrepreneurs and family offices, as well as alternative and impact investment
