Wealthy fleeing the UK to avoid IHT, say financial advisers

The abolition of a once eye-wateringly high rate of inheritance tax allowed the nation’s economy to flourish

THE rich are already leaving the country because of inheritance tax (IHT), experts have warned.

Financial advisers have said thousands of wealthy individuals are departing Britain because of the growing tax burden, which is on track to reach its highest since the Second World War. Private wealth managers have said the wealthy are making plans to acquire domicile status in tax havens like Monaco, Switzerland and Dubai.

The Daily Telegraph is campaigning to scrap the divisive 40 per cent death duty. More than 50 MPs including Liz Truss and Nadhim Zahawi have backed the move.

Last night, Lord Frost also gave his support, saying: “There’s no future for this country as a high-tax, high-spend socialist economy. So we need to cut spending and get the tax burden down.

“Nigel Lawson, when chancellor, aimed to abolish one tax every year. We should have the same aim, and inheritance tax would be a good place to start.”

Neela Chauhan, a private client partner at accountants UHY Hacker Young, said she had seen wealthy people moving abroad “because they’re worried about the burden of inheritance tax”.

Wealthy individuals who leave the country to escape tax typically do so in their 40s and 50s, she said.

She said: “Some of them are leaving and still trading through companies but any new ventures will be in the country they’ve moved to. There will be a huge brain drain as a result.”

Mark Davies, of Mark Davies & Associates, a tax adviser to high-net-worth individuals, said wealthy clients were looking to acquire domicile status in the Channel Islands and Cyprus to avoid the tax burden as early as their 40s, emboldened by the ability to work remotely.

He added: “People at earlier stages are now looking at moving. A similar thing happened in the 1970s, when high taxation led to a massive brain drain.”

More than 12,000 rich people have left the UK since 2017, research by migration consultancy Henley & Partners and data firm New World Wealth found last year.

Britain’s bloated tax system is raking in more money than ever from inheritance tax. The Government brought in a record £7.1billion last year, and the proportion of deaths hit by a bill has approximately doubled since the Tories came to power.

For 14 years, the government has failed to fix a levy that has been condemned as fundamentally un-Conservative and abandoned by much of the Western world. Sweden said goodbye to inheritance tax almost two decades ago, making it the first country to kill off the levy under a social democrat government.

The Daily Telegraph’s campaign is calling on the Government to follow in Sweden’s footsteps and abolish the tax that has been wreaking havoc on readers’ lives.

Anders Ydstedt, of the Svenskt Näringsliv, a body that represents Swedish businesses, said the abolition of its inheritance tax was a reform that attracted rare cross-party support.

“The situation in Britain looks very much like Sweden before we scrapped the tax,” he said. “It is hitting people who are not really wealthy and it is creating anger in broader groups.”

Britain’s basic allowance for inheritance tax has been frozen at £325,000 since 2009. This, combined with a boom in house prices over the past decade, has dragged a rising number of ordinary families into paying the tax.

“This is when it starts to get more attention politically,” Mr Ydstedt added. “In Sweden, when it got to this point, all parties, from the communists to the Conservatives, voted to abolish our inheritance tax.”

How Swedish IHT met its end

Inheritance tax had existed in Sweden, in various shapes, since around the

17th century. The tax rate was progressive and varied according to the beneficiary – but reached a record high in 1983, when grieving families were forced to pay as much as 70 per cent on their inheritance.

This eye-wateringly high rate triggered its gradual decline – and by 2004, the year it was abolished, the rate had fallen to around 30 per cent. Still, as in Britain, the threshold for triggering an inheritance tax bill remained very low for immediate family, at just 70,000 Swedish krona, or around 101,210 krona (£7,462) in today’s money.

Daniel Waldenström, a professor of economics at the Swedish Institute for Business Research, said this meant around a third of families in Sweden had to pay the tax. “That is a very high number if you compare it with other countries,” he said.

Mr Ydstedt added that in thousands of cases widows and widowers were forced to abandon their family homes, with little wealth outside of their property able to foot the bill.

Despite the pain this inflicted on thousands of Swedish families, inheritance tax was by no means a significant revenue raiser for the government. Receipts from inheritance and gift taxes peaked in the 1930s, when they accounted for less than 1 per cent of gross domestic product.

Unlike in Britain, Sweden offered no inheritance tax relief for family-owned businesses. This was disastrous for Swedish enterprise, where around nine in 10 companies were owned by people related to each other in 2004.

Prof Waldenström added: “Entrepreneurs left Sweden and in the worst case, businesses did not grow as much as they wanted to. Well-known large business families moved abroad in the 60s, 70s and 80s.”

Ruben Rausing, the TetraPak founder, Ingvar Kamprad, the Ikea founder, and Fredrik Lundberg, an industrialist, all chose to emigrate before the tax was abolished – taking their fortunes and businesses with them. Mr Kamprad returned to the country after the levy was scrapped.

Stefan Ränk, head of the familyowned real estate group Einar Mattsson, told the Svenskt Näringsliv employers’ organisation in 2021: “We were probably the last ones to, out of dignity, pay any significant inheritance tax in the country. The tax influenced risk-taking and capital structure, and had a limiting effect on the business. The 200 million [krona] we paid in inheritance tax would, have been enough capital to build 1,000 new apartments.”

Business roars back

With powerful families so close to the heart of the Swedish economy, it is little wonder the abolition of inheritance tax helped the nations’ entrepreneurship to bounce back.

Mr Ydstedt said: “There was a boom in ownership transfers. Not only between families, but trying to find better external owners for the business. It led to more wealthy people moving back to Sweden, and that ultimately has been a positive.”

Meanwhile, the Swedish tax authority found the removal of the tax had encouraged the return of capital back into the country. It received almost eight thousand “selfcorrections” from individuals who chose to report wealth previously kept abroad from 2010 to 2014.

Mr Ydstedt added that the abolition of the tax had massively reduced the administrative burden on the Swedish tax authority.