Wolf, a 30-year-old software engineer, recently became a father for the first time and is already contemplating moving his family out of the UK. “We now have to choose between London and a second child,” he says, blaming the triple whammy of high rents, high childcare costs and high taxes.
European capitals such as Madrid, Paris or Berlin are not quite so costly, and tech sector salaries there are on a par with London. He says plenty of non-property owning friends in the capital are thinking the same, or have already gone.
“To rent a decent two-bed flat in London, you’re looking at £3,000 per month, plus another £2,000 per kid in childcare costs, assuming you don’t qualify for the subsidy — and all this from your post-tax income,” Wolf says, noting the eye-watering tax rates for those earning six-figure salaries.
“It feels like the UK government just wants this problem to go away. Well, they might just get their wish.”
FT Money has received dozens of emails from readers seriously thinking about leaving the UK in search of lower taxes and better opportunities. Our recent callout attracted plenty of responses from younger professionals, as well as entrepreneurs seeking to minimise capital gains tax bills on the sale of a business by relocating overseas. Plus, recent changes to the UK’s long-term residence rules create an opportunity for British nationals leaving the country to avoid inheritance tax on their non-UK assets.
Here, we summarise how readers of all ages and their tax advisers are weighing up the pros and cons of leaving the country.
Rob, a 31-year-old banker in London, says he and his friends frequently discuss the idea of working abroad. “We are all people with good jobs aspiring to normal things, like being able to afford to buy a house big enough to raise a family, which is increasingly difficult in the UK,” he says.
A recent British Council study found nearly three-quarters of 18 to 30-year-olds in the UK would consider living and working in another country in the short or long term. Nearly two-thirds said their standard of living was worse than it was for their parents’ generation, and more than half cited low wages as the biggest challenge young workers faced.
Rob would ideally like to work for a European bank, but like many UK nationals, fears his language skills are not good enough. Other readers attracted by the idea say they have hit a wall researching visas and work permits (see box below) or have found that popular destinations such as Australia have equally high housing costs. Many are drawn to the idea of earning a tax-free salary in the Middle East for several years and coming back to the UK with a ready-made housing deposit.
However, FT readers working in the Middle East urge caution, stressing the myriad ways of spending money in the playground of the rich. “People come to Dubai because they’ve seen the TV shows, but they don’t understand the maths of the expat lifestyle,” one says. “There is no security of employment out here,” warns another. “If you lose your job for whatever reason, your visa is cancelled and you have to leave immediately.”
Robert Salter, director at tax adviser Blick Rothenberg, says mid-career professionals are more likely to make a stint in no-tax or low-tax jurisdictions such as the Middle East and Singapore pay off. “People nearer the peak of their career earnings find the negatives that can arise in such locations — such as high housing costs, the need to pay for private medical insurance and potentially international schooling costs — are still more than covered by the lower income tax charges,” he says.
Others see it as a way of setting themselves up for a more comfortable retirement. John, a reader from London in his mid-50s, took up a senior role in Abu Dhabi on a three-year contract after being approached by a headhunter. “This gives me financial choices about retirement that would have taken me twice as long to achieve had I stayed in the UK,” he says.
He can still afford to save a good chunk of his tax-free salary, even though he is renting a spacious apartment with access to a pool and gym, and is planning lots of travel around Asia “Flights are cheap, and India is less than four hours away on a plane.”
Providing non-UK tax resident workers plan appropriately, experts say there should be no tax to pay on money they eventually repatriate to the UK. However, readers who have already moved overseas warn about the need to manage exchange rate risk.
Younger professionals working overseas need to inform the Student Loans Company. Repayments will cease to be deducted automatically from pay packets, but the liability remains and it can be costly to allow arrears to build up.
Higher capital gains tax rates brought in at last October’s Budget have given British entrepreneurs and business owners itchy feet.
A UK national selling a £100mn stake in their business could face a £24mn capital gains tax (CGT) bill. Louise Jenkins, tax partner at US consulting firm Alvarez & Marsal, says this could be reduced to zero if they left the UK, sold up, and were then non-resident for a minimum of five tax years, due to the UK’s temporary non-residence rules. However, those who fall foul of the complex details risk being taxed retrospectively.
Jenkins says younger entrepreneurs she advises tend to be attracted to Dubai, which combines tax benefits with a glitzy lifestyle. But obtaining tax residency in Italy is increasingly popular with older clients realising significant wealth. If non-doms in Italy pay a “flat tax” of €200,000 a year on their foreign-earned income, there is no CGT or inheritance tax to worry about for 15 years.
In Jenkins’ experience, entrepreneurial clients who have made vast sums of money rarely retire. “They still want to work, invest money and set up new businesses,” Jenkins says. “If they’re based overseas, countries other than the UK are more likely to reap the economic benefits of their talents.”
Other business-owning readers claim their decision to relocate was not solely because of UK tax rates, but other countries’ greater business dynamism. They say foreign governments show greater desire to attract start-ups and have more consistent tax policies.
Readers also stress the need to take tax advice well in advance of selling a business, both in the UK and in the country of the planned relocation.
Retiring abroad has always been popular, but tax advisers say that looming changes to the inheritance tax treatment of pensions have promoted a fresh wave of interest from clients in their 60s and 70s.
Salter adds that new long-term residence rules introduced in April have added to the effect by creating a potential IHT saving for British nationals who leave the UK.
“In effect, British-domiciled individuals who remain non-resident for more than 10 years can now avoid an IHT liability on their non-UK assets, in a way which basically wasn’t possible under the previous system,” Salter says.
Advisers say plenty of older clients are exploring the possibility of retiring abroad to exploit the new provisions, although few have yet made a decision to leave. For those who decide to remain in the UK, routes to mitigate IHT such as using trusts or setting up a Family Investment Company are available. But readers worry the rules could change again. “Who knows what this government or next could do in the future?” one asks.
Tax advisers say European destinations such as Italy and Spain are the most popular with retirees, though several readers mention Cyprus and Malta as having particular IHT advantages.
Katharine Arthur, a partner at HaysMac who advises wealthy clients on relocations, says double-taxation treaties mean income taken from pensions will typically be taxable only in the country of residence. “There may also be IHT or gift taxes to pay in the country they have been residing in, but these are generally less than here,” she says.
However, those considering this route must be confident that they can satisfy the rules for the whole 10-year stretch. The number of nights an individual can spend in the UK without affecting their tax status depends on their Statutory Residence Test. “This could be 90 days, but depending on individual circumstances, it could be as few as 46 days,” says Arthur.
Jonathan Black: Four career questions if you’re contemplating overseas move
1) What level of international mobility might different employers in your sector offer? Can you apply directly to their international offices, or are internal moves possible?
2) What are the visa requirements and costs? If you’re eligible, being sponsored by an employer is the easiest route, but relocation packages vary; you need to be aware of these and wider living costs.
3) How are your language skills? Increasingly, as competition for overseas roles increases, high fluency is required.
4) Assuming you plan to return to the UK eventually, will the experience you gain overseas be relevant to employers in the UK market? It pays to maintain your network and connections to the UK while you are away.
Jonathan Black is director of the Careers Service at the University of Oxford
She encourages clients to evaluate carefully the healthcare implications for themselves, and other family members. Having enough scope to come back to the UK to care for elderly parents is a common concern, but other readers say care costs are another important factor to consider.
Martin, a retired engineer in his 60s, is due to leave England for good at the end of this month to settle permanently in South Africa. “My wife has Alzheimer’s and the quality of care there is a third of the ludicrous price in the UK,” he says. “The cost of living out there is 40 per cent cheaper; my overseas pensions will arrive untaxed and, when I die, I’ll pay 20 per cent inheritance tax.”
Martin stresses he is not a “wealthy non-dom”.
“I’m just an English bloke who has worked hard,” he says.
All advisers emphasise that meticulous record-keeping is a must. Pete Fairchild, national head of private clients at Crowe, a tax adviser, says it is important for individuals who have relocated to maintain “copious” records of their time spent in the UK to avoid unintentionally resuming UK resident status.
“While the administrative burden may not be well received, it is vital — especially as many tax commentators anticipate a raft of future HMRC enquiries in this area,” Fairchild says.
Many older readers, meanwhile, say the biggest barrier to leaving the UK is emotional, rather than practical. Several say they have been held back by a spouse’s reluctance to leave friends and family — especially grandchildren.
One 62-year-old reader, who is contemplating a move to Italy, Portugal or Dubai after selling his business, says that, if he had only himself to please, he would have moved countries already.
But he adds: “Finding a solution that keeps my wife happy is the challenge.”
The couple have three children in their 20s and he has encouraged them to look outside the UK for their futures, he says.
“They will have to make up their own minds about what they do, but maybe they’ll want to follow us.”
Thank you to all the FT readers who shared their experiences. We have changed some names to protect their anonymity.
