(Bloomberg) -- Gabor Futo spent the past two decades forging one of Europe’s biggest property empires. Today, he spends much of his time fighting UK Prime Minister Keir Starmer’s flagship tax policy for Britain’s wealthy foreigners.
The Futureal Group co-founder is one of the few members of Britain’s so-called non-dom population who are publicly battling proposals from Starmer’s Labour Party that aim to reform the UK’s preferential tax system for the small but influential group.
Many non-doms who were looking to leave have already done so or finalized exit plans before the UK’s Oct. 30 budget. Futo, however, is choosing to stay — for now at least — and channeling his resistance through Foreign Investors for Britain, a lobbying group he founded this year with other well-heeled foreigners and wealth advisers.
The Hungarian native has a stark warning for UK Chancellor Rachel Reeves on her current plans.
“This may be a second Brexit moment,” said Futo, 48, a UK resident for the past three years. “If the UK blows up the non-dom system, it could be difficult for the country to build back trust.”
While such warnings are in their interests, the flight of non-doms is a real threat to the UK economy and tax receipts. Non-doms — foreign residents who span City of London bankers to multibillionaires — currently don’t pay UK taxes on their overseas earnings for as long as 15 years. They can initially claim the status without any extra charges but face annual costs of as much as £60,000 ($78,000) if they continue to reside in Britain, where they pay UK taxes on local earnings.
The wealth and high profiles of those revealed to have claimed the status — such as the Conservative Party’s onetime deputy chairman, Michael Ashcroft, and the wife of its outgoing leader Rishi Sunak before she revoked it — make it a hot political topic, especially when the economy is facing headwinds.
In March, the then-Conservative government said it would require non-doms to pay tax on overseas income after living in the UK for four years instead of the current 15. At the time, the UK’s Office for Budget Responsibility estimated the move would raise around £3 billion a year. But Labour wants to go further, pledging ahead of its landslide election victory in July to eliminate inheritance tax breaks on assets that non-doms hold in overseas trusts if they’ve lived in the UK for at least a decade.
“We are addressing unfairness in the tax system so we can raise the revenue to rebuild our public services,” said a Treasury spokesperson. “That is why we are removing the outdated non-dom tax regime and replacing it with a new internationally competitive residence-based regime focused on attracting the best talent and investment to the UK.”
The inheritance tax policy is especially spooking non-doms, many of whom are also likely to be affected by Labour’s other plans to hike taxes for private equity investments as well as private school fees, which can cost more than £55,000 a year. Super-rich UK nationals are also exploring leaving the country, increasing the risk of a wealth exodus that could put a dent in Labour’s plans to shore up public finances.
“Countries are competing for these people,” said Futo, who has a Netherlands-based holding company with net assets of more than €300 million ($325 million). He declined to comment on his wealth.
Futo eventually plans to leave Britain — possibly to Switzerland — to avoid the UK’s standard 40% inheritance tax rate if the current proposals are brought in. “I have several friends that left already,” he added, citing Monaco and Italy as destinations.
‘Unique Asset’
Labour’s inheritance tax reforms for non-doms seem especially egregious to those from nations such as India, Israel or Futo’s native Hungary that don’t have similar levies at home.
A London-based heiress to one of India’s biggest industrial fortunes, who asked not to be identified discussing her personal tax affairs, spent part of the summer in Switzerland with her family to test living in the country. The multimillionaire and her husband, who moved to Britain four years ago and are major supporters of the UK’s art sector, are now waiting to see what’s in the budget later this month before deciding whether to move.
An Oxford Economics survey this year of almost 75 non-doms found that more than 80% of those polled cited Labour’s inheritance tax changes as a major reason they’re likely to exit the country. The median investment in the UK for the group was £10 million to £30 million.
“The UK took more than 100 years to create this unique asset for entrepreneurs and investors,” said Futo, a married father of three children. “And now they’re seeking to destroy it in about 100 days.”
The number of non-doms had already declined by almost half to 74,000 in the decade to April 5, 2023, partly from 2017 changes curbing permanent use of the benefit. It’s not clear how many people who gave up the status have left the country, but many of those who remain or have arrived since then are major investors in the UK economy, contributing more than £8 billion in taxes a year.
Rachel Reeves is weighing tweaks to the non-dom proposals amid growing concerns that the current plans may end up costing tax revenue, Bloomberg News reported last month.
Foreign Investors for Britain is also engaging with 10 Downing Street officials. Starmer’s team reached out in recent weeks to the lobby group, which commissioned the Oxford Economics study published last month that concluded Labour’s non-dom reforms may cost £1 billion a year instead of raising funds.
Starmer’s aides pushed back a meeting that was scheduled for Thursday but are still due to meet the lobby group led by veteran lawyer Leslie Macleod-Miller ahead of the budget, according to a person familiar with the matter, who asked not to be identified as the details are private.
To stem the flow of non-doms leaving, the lobbying group is championing a tiered preferential tax regime, similar to those in other European nations. It would run alongside the UK’s proposed four-year system, giving people a choice between the two.
Non-doms including Futo, US tech entrepreneur Alex Algard and the Indian heiress told Bloomberg News they would stay longer in the UK with that alternative system, which would impose annual charges of as much as £2 million under the same 15-year timeframe as Britain’s existing regime.
The tiered regime would make the UK one of the most expensive residency options for Futo and his peers, but he said the UK should be positioning itself as a premium wealth hub.
“The UK is still one of the best options, especially for those who already live here,” Futo said. “It’s expensive to move.”
--With assistance from Joe Mayes.
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