Is Inheritance Tax Driving Britain’s Wealthiest Abroad? The Chris Rokos Question

This week, Investing Insiders published the International Wealth Index: an analysis of a dozen international tax systems and how residents of those countries fare when compared to UK taxpayers.

In a week when it was announced that Chris Rokos, the billionaire founder of hedge fund Rokos Capital Management, and Britain’s third-highest individual taxpayer has made the decision to quit the UK for Greece, the questions raised by the analysis have taken on a new urgency.

What our analysis found was stark: the overall tax burden on average UK earners is comparatively low (placing the UK 11th out of 13 developed countries).

However, high earners in the UK are saddled with some of the highest tax bills in the world.

When compared to the tax regimes levied by other developed nations, UK business owners and those on incomes just below the £100,000 threshold had the fifth, and fourth, respectively, highest tax bills of the 13 nations analysed.

The largest tax burden, however, is carried by the most successful UK earners. This group was the one most penalised by their UK status.

Punishing billionaires

For the top 1% of earners, the UK imposes the third highest overall tax burden of the 13 developed countries in our analysis, when combining taxes on income derived from wages, investments, and inheritance.

Only Japan and France have higher overall tax bills for this particular group.

And when we drilled down into which parts of the tax system were responsible for these elevated tax bills, we found that while high income tax is a key element, it is by no means the biggest problem for the wealthiest earners. In fact, the UK (fourth overall most expensive for high earners, levied less income tax than the USA which came it at position 13 out of 13 for overall tax burden). So, it’s not income tax that causes the UK taxpayer bill to rise so dramatically; it is inheritance tax.

Inheritance tax propels the top three into their chart positions, with Japan, France and the UK all imposing the highest IHT bills among the 13 nations.

At the other end of the table are Australia, New Zealand and the USA – all of which imposed 0% inheritance tax bills.

The scenarios we constructed to make these calculations were imagined: we assumed our wealthiest earners had received an inheritance of £3.1 million, consisting of a £2.5 million property, £500,000 from ISAs and investments, and £100,000 in other assets. And, of course, inheritance tax is my its nature not likely to be a tax an individual pays often, certainly not yearly. But the scenario we constructed represents a very real problem that many of the UK’s highest earners are grappling with right now: what to do about IHT?

Without question, the UK’s approach to inheritance tax supersizes tax bills.

In the set of circumstances we looked at, IHT accounted for almost 90 per cent of a UK earner’s overall tax bill in the year the inheritance was received. When other countries are charging considerably less, or in some cases, zero IHT, you can see why the ultra-wealthy are choosing to leave.

Of course, we can only speculate about the reasons behind on Chris Rokos’ decision. But it’s fair to say, for those who wish to pass a sizeable fortune to future generations, UK inheritance tax is a major headache.

A 99.97% tax cut

Greece did not feature among the original 13 countries in our analysis. However, Greece makes an interesting case study as it has intentionally introduced incentives that are aimed at encouraging wealthy individuals to relocate within its borders, with a special regime for wealthy people moving their tax residence there.

A qualifying new resident of Greece can elect to pay a €100,000 annual lump-sum tax on foreign-source income, rather than having that foreign income taxed under the normal Greek system. Although there is also normally a €500,000 investment requirement to qualify for this regime, that is small fry for a billionaire. And there are long term benefits for that initial investment given that, in Greece, this generous tax structure can last for up to 15 years.

Greece has also recently introduced an additional incentive aimed specifically at investment managers: qualifying hedge-fund and private-equity executives can have bonuses and carried interest taxed at just 5%, rather than the normal rate.

The exact figures relevant to Rokos will largely depend on how his income is classified. But in the best case scenario, his tax bill could drop from £330m in the UK to around £86,000 (€100,000) a year in Greece: just 0.03% of the UK figure.

This is another significant advantage. Under Greece’s special non-dom regime, qualifying individuals are generally exempt from Greek inheritance and gift tax on foreign assets, a potentially extremely valuable factor to someone with a multibillion-pound fortune.

Chris Rokos’ decision is a timely reminder that tax is not just about what you earn today, but what happens to the wealth you build over a lifetime. For someone with a substantial fortune, the difference between countries can be enormous – particularly when inheritance tax is taken into account.

Our research shows that the UK remains relatively tax-friendly for average earners, but the picture changes dramatically as wealth and income rise. If the UK wants to remain an attractive place for the world’s wealthiest individuals, it needs to consider whether its approach to taxing both income and inherited wealth is making other countries increasingly difficult to ignore.