Is Britain A Future Tax Haven?

The United Kingdom isn’t viewed as a tax haven. Money flows in from across the world to prime real estate in Mayfair and stocks listed in Paternoster Square because investors see opportunity to make money, not save it.

That could soon change, depending on the outcome of the ongoing Brexit negotiations. Over the past three years, as the negotiations between Westminster and Brussels dragged on, Britain experienced an unprecedented wealth drain. Dozens of major companies, including Airbus, Aviva, Credit Suisse, Bank of America Merrill Lynch, Barclays, Dson, Ford, and Honda have either cut jobs, cut investments, or moved to other locations (Ben Chapman and Joe Sommerlad, Independent, 26 Feb 2019).

Joining the exodus are wealthy individuals from across the nation. According to Bloomberg’s latest report (Alexander Sazonov, April 30, 2019), 3,000 millionaires left Britain last year alone, with most citing higher taxation and Brexit-related uncertainties as reasons for their departure.  

Faced with a stampede of job-creators and investors leaving the country, Britain may be tempted to adopt the most popular remedy for this situation - lower taxes. The potential model of turning Britain into what political leaders call “Singapore-on-Thames” suggests the nation could cut corporate tax rates, and deregulate the financial markets (the Local, 25 January 2017).

Indeed, the Tory government has already promised sweeping corporate tax cuts over the next few years. The UK’s corporate tax rate of 19% is already lower than all other G7 countries and 15 European nations (Helen Miller, Institute for Fiscal Studies, 10 May 2017). Just last year, Panasonic announced it was moving out of Britain because of fears the Japanese government could view post-Brexit UK as a tax haven. Britain’s move towards haven status seems on its way.

However, there are several reasons this plan would fail if implemented. Firstly, the UK is already a tax haven in some sense. Money from across the world flows to London after running through a filter in Crown Dependencies and Overseas Territories like the Cayman Islands, Jersey and the Isle of Man (Nicholas Shaxson, the Guardian, 24 October, 2017). Secondly, the European Union is already clamping down on tax havens across the world by placing them on a blacklist. Earlier this year, the EU threatened to include the Cayman Islands and British Virgin Islands on its list of “non-cooperative tax jurisdictions.” (Business Line, March 04, 2019).

Finally, the biggest hurdle to tax haven status may be scale. The UK is the fifth largest economy in the world, and to replicate the Luxembourg or Liechtenstein model it would need to attract more capital than the entire planet currently has (Nicholas Shaxson, the Guardian, 24 October, 2017).

Information is based on our current understanding of taxation legislation and regulations which is subject to change