Post Brexit, could the UK's non doms make a break for Switzerland?
Every year, non domiciled taxpayers (popularly known as non doms) make a significant contribution to the UK economy. But with Brexit causing increased economic uncertainty and already having an impact on the UK economy, government is likely to lean on these non-doms even more heavily as it looks to increase revenue.
As a result, some who would've ordinarily invested in the UK without hesitation may be tempted to look elsewhere.
There is a case to be made that Switzerland, with its robust financial institutions, high levels of political stability, and first class infrastructure is among the more attractive alternatives to post Brexit Britain.
The value of non-doms
For those not familiar with the term, a non dom is a person living (ie, resident for tax purposes) in the United Kingdom who is considered under British law to be domiciled (ie, with their permanent home) in another country.
As of 2018, there were some 91 000 non doms in the UK. While their numbers are small, they include some serious wealth. As Bloomberg points out, some of the UK's more notable non doms have, at times included business magnates, football club owners, and rock stars.
They're also a major contributor to the UK's fiscus. According to figures from the HMRC, non doms contribute almost £9.4bn of income tax, capital gains tax and national insurance receipts. Additionally, the average non domiciled taxpayer contributes £105,000 in tax and national insurance receipts.
Several factors, most notably reforms removing their permanent tax breaks and rising costs to keep their tax status, have seen a growing number of non doms moving elsewhere. As of mid-2018, the number of non doms in the UK was at its lowest levels in a decade. While many high end investors are still optimistic about the UK, these are trends worth paying attention to.
It's also worth remembering that with Brexit placing the UK economy under further strain, non doms are likely to be further targeted as a source of revenue generation, causing yet more of them to move their wealth into other markets.
There's a strong case to be made that they should be looking at Switzerland.
Swiss tradition + Global innovation
For decades, if not centuries, Switzerland's banking, asset management and wealth planning industries were notorious for their confidentiality and opacity. While this made it attractive to a certain breed of investor, global authorities eventually started to take notice.
Much has changed over the last few years, with various reforms and reporting conventions having been applied worldwide: Fatca and CRS to name the most prominent. In addition, wealth creation has accelerated in parts of the world further away from the traditional asset management hubs of the past and developing markets in the east have pushed financial centres such as Singapore and Hong Kong to the front stage of asset and wealth management.
On the back of those developments, many predicted the decline of Switzerland as an asset management and wealth planning preferred jurisdiction. However, Switzerland still has a lot going for it
The main factors that maintain Switzerland as a strong jurisdiction for asset management and wealth planning are:
Political stability - compared with some of its European neighbours, Switzerland's moderate and stable political system stand out. This stability translates to a predictable work frame, which is one thing all investors love.
Fair and highly professional legal system - Switzerland's legal system, similar to its political system, is stable, relatively incorrupt and highly professional. This stable environment is extremely important for clients of Swiss-based wealth planners. When substantial reforms take place, they are planned years in advance and ample time is available for concerned parties to prepare.
First class infrastructure - when it comes to infrastructure, be it communication, transportation, medical or education, Switzerland ranks amongst the global leaders. This, in turn, facilitates any logistical aspect that is relevant for operating in Switzerland, from short term visits to longer term stays and setting up of business operations.
Highly qualified workforce and flexible and attractive job market - the global reforms that have, and are still, reshaping the investment and wealth management global landscape, forced many Swiss institutions to improve the quality of their services. The flexibility of the local market place and the ease of attracting foreign talent has supported this industry upscaling.
Innovation - while Switzerland is often portrayed as conservative and slow to change, innovation is actually not that hard to find. One such example is cryptocurrencies and blockchain technology that has been adopted at all levels, technical, legal and regulatory, banking and educational at a surprising speed, putting Switzerland at the centre of many legal structures that are operating in this space.
While Swiss property space may not be quite as lucrative to overseas investors as the UK's has been over the past couple of decades, the above factors have all been important in attracting non-doms to Switzerland. And, as global economic uncertainty continues to rise, the stability provided by Switzerland will become increasingly attractive. There is, in other words, no reason why any non-doms reconsidering their future in the UK shouldn't cast their eyes towards Switzerland.
Haggay Aidlin is managing director: Wealth Planning, Geneva Management Group
