Milan Scores as Non-Dom Rules Hit the UK
Bloomberg reported this month that Milan is poised to dominate the European financial landscape, as Labour’s non-dom regulations begin to drive investors away from the UK. Italy is now mirroring the UK’s former non-dom rules, offering a flat-rate payment of €200,000 (£168,000) that allows expats to avoid standard Italian taxes. For example, if you earned £600K in the UK, you’d pay £270K in tax — compared to the flat rate of £168K in Italy. Family members can be added to the scheme for £21K, and participants are exempt from wealth and inheritance taxes.
‘Svuota London’ – or ‘empty London’ – is a phenomenon noted by investment advisers. Dominic Lawrence, partner and tax adviser at Charles Russell Speechlys, told the financial press that 60% of his UK clients are now heading to Italy. He added:
‘We should be following Italy’s lead… In the eyes of some, Italy took the best parts of the UK non-dom system and simplified it through the flat-rate levy, based on residency instead of the more complex legal concept of domicile.’
Loopholes in UK Inheritance Tax
However, if you’re a less wealthy pensioner, you might not need to contemplate Italy for your pension options. A loophole in the recent revision of the Inheritance Tax rules suggests that if you’ve been resident in the EU for more than a decade, you could be exempt from inheritance tax – even if you moved back to the UK. You would, under the new rules, be allowed to live in Britain for a further nine years before becoming eligible for IH again.
Hargreaves Lansdown’s Sarah Coles told the press:
‘However, [you’d] have to be fairly secure in the knowledge [that you] only had nine years left … or be prepared to leave the UK again if [you] lived any longer.
She went on to explain that wealthy expats would also need to keep their UK assets as low as possible, which might mean living in a more modest property than they are accustomed to — or simply renting instead. She added:
‘If they have the kind of wealth to make this sort of international relocation worth the effort, you have to wonder whether they’d want to make these lifestyle compromises.’
Tax experts say that it remains to be seen whether this is a viable long-term policy with regard to attracting wealth back to the UK or not, and note that it benefits those who can afford to manage their affairs internationally.
British Retirees in EU ‘Pay No Tax’
British retirees resident in the EU ‘pay no tax’ according to a report in May in the Daily Telegraph. The report quotes statistics from the Department of Work and Pensions, showing that, as of August 2024, 42,000 pensioners in Europe (out of 480,906 pension recipients) were in receipt of state pensions from the UK that exceed the £12,570 personal allowance.
Because of the way UK pensions work — for example, through income-related add-ons — some retirees receive up to three times the national pension of £11,976. The UK state pension can be taxed, but not if you are no longer a UK resident. Double taxation treaties mean you can’t be taxed by Britain if you’re resident elsewhere — at least within the EU. As we’ve previously reported, some pensioners miss out on the triple lock because they live in countries without such agreements, like Canada.
Tax advisers Quilet Cheviot told the press:
‘Those receiving the state pension while living abroad with income exceeding the personal allowance may pay a different level of tax compared to those with the same income living in the UK. In some cases, those living abroad may take home more of their income than their UK counterparts.’
You can boost your pension by delaying the start date of payments. If you’re on an older additional earnings-related pension — known as the State Earnings Related Pension Scheme (SERPS) — this can also increase your pension. SERPS, which ran from 1978 to 2002, pays an additional amount on top of the basic State Pension if you were employed and earned above a certain threshold. However, if you’ve been claiming your State Pension since 2016, you’ll be on the new pension scheme.
UK ‘Second’ in Foreign Direct Investment Projects
Multinational services firm Ernst & Young reports that the UK received 853 Foreign Direct Investment (FDI) projects in 2024. While this marks a decrease from 2023, the UK still ranks second to France in terms of European investment. Similarly, Greater London remains Europe’s leading region for investment, and overall, the UK leads Europe in tech FDI.
Anna Anthony, UK & Ireland Regional Managing Partner of Ernst and Young, commented on the findings that:
‘…the UK still has a compelling investment story to tell. It has outperformed Europe in securing investment into future-facing industries such as technology and life sciences, generates the most FDI-related jobs and tends to attract capital from a broad global pool of sources.’
Ernst & Young note that the UK’s relative political stability continues to make it attractive to investors, despite a broader shift toward Asia. They say the UK projects ‘a sense of regulatory and legislative stability,’ along with a focus on project quality over quantity. EY also highlight that the UK attracts investment from both the Commonwealth and Europe.