In previous periods of high UK personal taxation, wealthy individuals and families moved their homes to Jersey, Switzerland or Monaco. These locations gave new residents the advantage of low rates of individual tax, relatively easy access to Britain and comfortable lifestyles.
While these jurisdictions have continued to remain popular with high-net-worth individuals, the trend – until comparatively recently – had remained relatively static. But the gathering economic gloom in the UK and, more importantly, higher rates of personal taxation have persuaded some prominent individuals to quit the UK.
Most prominent is the private equity millionaire Guy Hands, who last year began a move to Guernsey. Alchemy Partners founder and managing partner Jon Moulton, who is a leading and vocal critic of penal personal tax rates, has been quoted as saying that he is considering the Isle of Man or Monaco.
Hargreaves Lansdown chief executive Peter Hargreaves says he is weighing the options after the UK Budget in April. Odey Asset Management founder and chief executive Crispin Odey is understood to be considering taking his asset management group, which controls more than £3bn, to an as yet unspecified low tax jurisdiction.
It is not only the simple rise in UK tax rates which is encouraging this exodus – the removal of allowances and disincentives on pensions are also contributing to the flow.
Ernst & Young, Guernsey, partner Graham Parrott says the prevailing economic gloom is also a factor in encouraging wealthy individuals.
He says: “There is still a high degree of uncertainty about how long the recession will last and what impact that will have on the business and social environment.”
The traditional destination for wealthy people is Jersey. It enjoys a popular reputation as a millionaires’ island partly because of the residence restrictions imposed by the states of Jersey. Residence in Jersey is determined on a set of criteria based on the taxable income which the Government can receive from high-worth residents.
Jersey’s director of high-value residency Nigel Philpott says: “Jersey is harder to get into than the other alternative jurisdictions such as Guernsey, the Isle of Man and Mon-aco.” All applications for residence pass through his office.
High-net-worth residents are known in shorthand as 1(1)Ks. This designation comes from the section in the Housing Law which covers applications from wealthy individuals. The granting of a 1(1)K licence permits an individual to buy or lease property in the island.
A key consideration in the granting of 1(1)K licences is the expected level of ann-ual tax contribution to be made by the applicant. To meet the current requirements, applicants would normally be expected to generate sufficient income so that — at the present rates of tax — each annual tax contribution is in the region of £100,000. As part of the application process, consideration will be given to the total net worth of the applicant.
Philpott and his team need to be satisfied that the applicant has sufficient wealth to generate the expected future tax revenues.1(1)K individuals new to the island are taxed on their Jersey source income at 20 per cent. The first £1m of non-Jersey source income is also taxed at 20 per cent but the next £500,000 is taxed at 10 per cent and non-Jersey source income above the £1.5m level is taxed at just 1 per cent.
There is a degree of latitude in that the tax criteria can be waived. An applicant may be granted a licence even if he or she does not meet the income requirements. The Government can invite someone to be resident if they would be regarded as a social or economic asset to the community.
Philpott says interest levels have grown substantially, especially since the UK tax hike, but the process from initial enquiry to setting up in Jersey can take up to two years.
He says: “There is a range of factors. It often starts with visits to Jersey to investigate quality of life, availability of real estate, opening a business and finding suitable schools. There will be the application itself. After that, assets in the UK may need to be sold and the move may be delayed to the end of school years. In the end, we average nine new high-net-worth residents a year.”
In Guernsey, the government decided on a different method to control the population growth. Parrott says: “The states of Guernsey decided that 90 per cent of the housing market would be local market and 10 per cent open market. This means that anyone can buy in the 10 per cent division but only local people can purchase in the 90 per cent. There is plenty of capacity in the 10 per cent so Guernsey can welcome a fair few new residents without putting any strain on resources.”
Like Jersey, Guernsey has a 20 per cent personal income tax rate and no capital gains tax nor inheritance tax. Both islands have a milder climate, a more relaxed lifestyle and a safer community. The quality of education equates with the best in the UK.
The Isle of Man is similarly keen to attract new residents. The official policy of the Manx government is to target areas in which growth is required while monitoring and ensuring that it is compatible with the Manx community. This policy is regarded as vital by the Manx Government for reasons other than just the prevention of a net popul- ation decline.
Unprecedented expansion of the finance sector in recent years has created many more jobs than could be supplied by the existing market. The ongoing need for professional and skilled people from outside the island is therefore likely to continue for the foreseeable future.