UK high earners eye Asian destinations

Asia's healthy cash reserves look set to swell further, if wealthy individuals from the UK follow through on plans to relocate in the coming year. A survey of client advisers released yesterday by London-based law firm Withers found that three-quarters are very likely or somewhat likely to move abroad in the next 12 months.

While Switzerland was the most popular relocation destination, cited by 63% of those thinking of leaving the UK, around one in 10 cited Hong Kong (11.2%) and Singapore (9.48%) as their favoured destination.

Meanwhile, 68% of those surveyed said they would move both their family and their business abroad, adds Withers, highlighting the wide-ranging effect that such an exodus would have on the UK economy, tax take and employment prospects.

Philip Munro, an associate at Withers in Hong Kong, says the main reasons given for wanting to move were: uncertainty as regards future government tax policy, personal tax rates, and lifestyle factors generally.

From April, the top rate of UK income tax will rise to 50% from 40% for annual incomes over £150,000. "Although 40% is relatively high globally, it seems to have been generally accepted," Munro tells AsianInvestor. "For many, the 50% rate takes it over the tipping point." Another factor is bank payroll tax -- which taxes bonuses paid to bankers -- that the UK government is imposing to recover some of the money spent on bank bailouts.

Aside from tax rates, respondents also indicated that their uncertainty about the government's intentions was another reason to become a non-resident. Munro says there have been significant changes in the UK tax regime every year for the past few years, leading to a loss of confidence among some taxpayers.

By contrast, Hong Kong has a very understandable tax regime, where the general principles have remained steady, says Munro. Singapore has changed some tax rules in recent years, he adds, but some of these changes have been made with the aim of attracting entrepreneurs and businesses, such as a tax incentive for fund managers introduced in early 2009.

Certainly, some firms, such as the newly set established Bank of Singapore, are hoping to attract clients as a result of the city-state's regulatory environment. And other jurisdictions, such as Australia, are also recognising the importance of having a business-friendly tax regime in place -- witness the newly published Johnson report.

Meanwhile, among those respondents to the Withers survey who said they or their client plans to stay in the UK, there is a clear interest in tax planning to reduce future tax exposure. As the rate of capital gains tax is just 18%, respondents have a clear desire to convert income returns to capital gains. Over half (56%) cited use of structures including offshore bonds to reduce tax exposure, while 30% said they would look to offshore pensions.

However, although regulatory uncertainty and higher taxes are major reasons driving high earners to move, could such shifts ultimately have a knock-on effect in jurisdictions such as Hong Kong and Singapore?

Unlikely, argues Munro. "Although there have been attempts to introduce global standards in certain areas, it is difficult to achieve international conformity particularly in the area of tax policy and financial services regulation," he says. "In any event, in most cases, UK and US high earners will want to be subject to a degree of regulation, and Hong Kong and Singapore are both perceived as regulated jurisdictions."

From a tax perspective, there may be some reputational premium in operating in jurisdictions that have complete tax systems, Munro adds. Both Hong Kong and Singapore have sophisticated tax regimes, unlike some traditional offshore jurisdictions, he says, but their regimes are territorial in scope, which can be favourable where individuals have investment assets in multiple jurisdictions.

Other findings of the poll include that the UK is attracting fewer non-doms than pre-April 2008, according to 82% of respondents. Moreover, a change of government is unlikely to make people reconsider their decision to move. Sixty-eight percent said the likelihood of their moving abroad would not be different if there were a change of government in the UK in 2010.

The survey of 116 respondents was conducted at a late-January seminar in London on the comparative tax and lifestyle advantages of staying in the UK rather than moving abroad. Respondents were all advisers to high-net-worth individuals and included bankers, accountants, independent financial advisers, trust companies and headhunters.

Marcus Dearle, managing director of Withers' Hong Kong office, says: "While the poll was never intended to be scientific, it gives a clear indication of the intentions and concerns of Britain's high-earners. Hong Kong and Singapore, amongst other locations, will ultimately benefit from the fact that Britain's top wealth creators and earners are under pressure as a result of higher taxes and uncertainty over the government's future intentions."