Taxes Spurn UK Business Migration

October 4, 2010 Taxation in SwitzerlandTaxation in UK

Day 62UK based high earning individuals are reportedly leaving the country in droves in response to recently implemented tax rules, but international companies are returning their headquarters to London.

The UK’s HM Revenue and Customs (HMRC) is set to lose an approximate GBP 500 million annually in tax revenues, after numerous high-income earners left the country to escape their high personal tax rates. According to new research published by the consultancy firm Kinetic Partners, nearly one quarter of the UK’s hedge fund managers have moved already. Perceived tax legislation unpredictability is generally regarded as the primary drivers behind the exodus.

According to the research, the UK Government’s introduction of a 50 percent top personal tax rate was the catalyst for the mass departures. David Butler, founder of Kinetic Partners, claimed that while increased tax rates were a significant concern for managers, the perceived instability and uncertainty in future tax legislation is what really drives hedge fund managers away. He explained that many high-earning individuals might only enjoy marginal improvements in their tax liabilities when relocating, but they will benefit from fixed taxation term over longer period of time. He quipped that if tax was the sole issue, there would be far greater numbers of managers moving to low tax jurisdictions like the Cayman Islands.

In light of hedge fund managers and other high-earning individuals leaving the UK, the HMRC has had to re-evaluate its income tax projections. The UK Treasury now believes that the 50 percent tax bracket will garner less than a third of its original projected amount.

However, no similar relocation certainty or patterns exist among European businesses, with numerous examples of corporations moving to and from the UK. In 2010 majors firms like McDonalds Corp, Standard Chartered Bank, Yahoo Inc and Kraft Foods Inc all relocated their headquarters from the UK. Other companies are also considering transferring their headquarters to international jurisdictions like Hong Kong, Singapore, or even New Zealand. Although, despite the seeming majority of firms opting to leave the UK, several large firms have announced plans to relocate back to London. In July 2010 international consulting firm Deloitte quietly announced that their legal headquarters would now be based in London.

Photo by AdamWilcox