Labour is coming for your wealth – here’s where to escape their taxes

Following Labour’s historic election win, many middle-class Britons have been left worried about what the new government will mean for their money – and are already rearranging their financial affairs accordingly.

Despite ruling out rises to income tax, National Insurance and VAT, Sir Keir Starmer’s pledges to add 20pc VAT to private school fees and scrap the “non-dom” status are fueling fears of wider tax hikes to come.

One way of avoiding a Labour tax grab would be to join the estimated 557,000 Britons who emigrated last year.

If you are already toying with the idea of moving abroad, the prospect of higher domestic taxes could tip the balance towards taking the plunge.

Here, Telegraph Money explains where best to relocate to swerve Labour’s tax raid.

For private schools

Sir Keir may have backed down on plans to strip private schools of their charitable status, but he has pledged to end their exemption from VAT.

The average day school fee in Britain is £18,063 per year, according to the Independent Schools Council, a trade body.

A 20pc rise could therefore add tens of thousands of pounds to a family’s school bills over the course of a child’s education, assuming the tax is passed on to parents.

Chris Etherington, a partner at tax firm RSM, says: “Increases in the cost of education may not be the sole factor in deciding whether to move overseas but it could well influence the decision of where to go.”

If you are looking to give your children a top-quality education abroad, Switzerland is well worth considering. The tax-haven has a world-beating reputation for quality schools, including Le Rosey, known as the most expensive school in the world, with yearly fees of CHF 144,900 (£126,000).

Co-educational since 1967, Le Rosey is keen to claim a slice of a market traditionally dominated by British boarding schools such as Eton and Harrow.

On the more affordable end of the scale, Collège du Léman International School consistently ranks near the top of league tables and charges fees of around CHF 36,000 (£31,000), for pupils aged two to 18.

Located in the cosy provincial town of Versoix, the business hub of Geneva is just a few minutes’ drive away.

The cost of living in Switzerland may be among the highest in Europe, but when you consider other tax perks, moving there can make financial sense.

Mr Etherington says: “Switzerland has a strong number of international schools. You also have 26 cantons with different tax rules, some of which are very favourable.”

The maximum overall rate of federal income tax is relatively low, at 11.5pc, although depending where you live, cantons can levy income tax of between 0pc and 30pc.

The country also taxes households, rather than individuals which simplifies – and can sometimes lower – the tax liability for wealthy couples.

Another option is Spain, which boasts some of the best value private schools in Europe. Six of the cities in Europe with the cheapest international schools are in Spain: Valencia, Malaga, Alicante, Madrid, Barcelona, and Majorca.

The country has seen “an influx” of student applications because of lower costs, Mr Etherington says.

King’s College Soto de Viñuelas, in Madrid, for example, is one of the top five schools in Spain, according to Forbes’ league table, with global education group Carfax Education ranking it as one of the top 15 schools in Europe (outside the UK and Switzerland).

The prestigious co-educational college in the Madrid suburbs charges yearly fees for students aged 11 to 18 of $8,250 (£6,513) for day pupils and $42,250 (£33,355) for boarders.

If you want to combine a quality education with a home on the sunny south coast, Sotogrande International School on the Costa del Sol is one of the top 75 International Baccalaureate schools in the world. Fees range from $15,500 (£12,381) for day pupils to $50,250 (£40,127) for boarders.

To live in Spain, you can qualify for a “golden visa” by spending €500,000 (£433,643) on a property. However, in April this year Spain’s Council of Ministers agreed this scheme would be act, in a bid to ease housing pressures in the country.

Alternatively, you can apply for a “non-lucrative visa”, which is designed for those not working in the country, and requires proof of financial self-sufficiency.

For “non-doms”

Labour plans to scrap the “non-domiciled” tax regime which allows people living in Britain to avoid paying UK tax on money they make overseas.

Non-dom residents tend to be wealthy. Three in 10 people who earn £5m or more claim non-dom status, compared with fewer than three in 1,000 among those earning less than £100,000.

The designation offers an opportunity for significant – and entirely legal – tax savings, if you choose a lower-tax country as your domicile.

Labour estimates that scrapping the non-dom status and cracking down on tax avoidance would raise £5.2bn – but Telegraph analysis suggests the non-dom changes would raise very little. There’s also the worry is that non-doms would simply leave the UK if the tax relief were abolished.

Dubai and Abu Dhabi in the United Arab Emirates have already become popular destinations for high-earners wanting to leave Britain.

Dubai ranked as the 18th most expensive city to live in for an international employee, in consultancy Mercer’s Cost of Living City Ranking 2023, which compared 200 cities across the globe.

You are also required by law to buy private medical cover in the UAE, with individual premiums costing an average of $5,587 (£4,393).

However, the big draw is that there is no tax on income or capital gains (CGT).

This means that if you are planning to sell your company and want to avoid CGT, you might move to the UAE temporarily to complete the sale.

Under UK tax law, you have to pay tax on gains you make on property and land in the UK even if you are a non-resident for tax purposes. But you do not pay CGT on other UK assets – shares in UK companies, for example – unless you become a British resident again within five years of leaving.

Mr Etherington says: “It doesn’t mean you can’t set foot in the UK, you’ve just got to be careful about it, and make sure you are not classed as a UK resident for the next five years.”

If you spend less than 46 days in the UK in any tax year, you will maintain your non-resident status provided you have not been classed as a UK resident for the previous three tax years. If you have had non-resident status for less than this, you must spend less than 16 days in the UK.

However, Mr Etherington warns that it is easy to make mistakes when it comes to following the rules, and that travelling back to the UK will draw attention from HM Revenue and Customs.

“Life happens. Covid is a good example – people were stuck in the UK and accidentally became residents here. Illness, too, may force you to come back if the only place you can get treatment is in the UK.”

This doesn’t mean you have to spend all five years in the UAE. After completing the sale in the UAE you can then move to another country for the remaining four years before you can return to the UK without any CGT liability from the sale.

Mr Etherington adds: “Sometimes clients find that Dubai is great for a holiday, but less good for living year-round.”

For retirees

While Labour has u-turned on its intention to reintroduce to the lifetime allowance (LTA) – for now, at least – there are other reasons for British pensioners to be concerned.

One target could be pension tax relief. In 2016, then-backbencher Rachel Reeves wrote a column for The Times arguing for a 33pc flat rate of tax relief. According to the latest HMRC figures, around 6.5 million people could lose out under such a system.

Labour has since denied this as a policy and it is no longer understood to be Ms Reeves’ view. However, the party has not definitively ruled it out and if it were introduced, it could hit some high earners with six-figure losses over a 30-year career.

Pensions freedoms rules and the removal of the tax-free lump sum have also been put into question.

Becoming a resident abroad and drawing your pension there could help to avoid a tax hit on your retirement income.

For many years, the obvious choice for an expat retiree has been Portugal and its “golden visa” which allows for tax-free earnings on international income for a decade.

But with Portugal’s socialist government winding down the scheme, expats-to-be are looking elsewhere.

Italy, for instance, has become more popular since it introduced a “forfeit regime” in 2017, when a fixed amount of tax is paid to cover all foreign income, whether £5,000 or £50m.

Italy has pegged its annual forfeit at €100,000 (£86,175). Assuming a UK tax rate of 45pc, if you have non-Italian source income over €222,222 (£191,417), moving from the UK becomes an attractive option.

If your income isn’t so high, you could apply to retire in one of Italy’s sun-drenched but less populated southern regions and pay just 7pc tax on your pension and other income from abroad.

To qualify, you have to settle in a municipality that has fewer than 20,000 inhabitants in southern Italy, which includes Campania and Sicily, and you still need to obtain a visa if you are not a EU citizen.

Another contender is Malta, whose attractive tax regime is designed to entice wealthy expats.

Most of the tax benefits arise when you have “ordinary residence” in the country which entails either renting or purchasing a property in Malta.

You must be at least 55 years old to apply for the Malta Retirement Program (MRP) which allows EU/EEA/Switzerland and non-EU nationals who intend to retire in Malta to obtain a residence permit.

Expats on the MRP are not subject to tax on non-Maltese-sourced income or capital gains and there is no inheritance, estate or gift tax in Malta – although a 5pc transfer duty can apply.

Yet as Geraint Davies, founder and managing director of financial planners Montfort, notes, whether a foreign country’s tax regime is favourable will depend on your specific circumstances.

He says: “It may be that by moving overseas you can draw down your pension tax-free. But everyone’s situation is different, so it’s really worth consulting a tax specialist before moving overseas. People sometimes think it’s plug and play – but it’s not.”