London has always been a favourite among the rich and famous because of its well-connected financial center, which also offers a great deal in terms of culture.
The UK capital could be losing its favored position among ultra-rich individuals as the new government is preparing to increase taxes for those who are resident in the UK but whose permanent residence — or domicile — in tax terms is outside of the UK as well as executives in private equity.
The government is planning to eliminate the tax system that was introduced by George III in 1799. This tax regime allowed non-doms to pay UK tax on only the money earned in the UK. The government is also planning on changing the tax treatment for carried interest. This is a type of income that managers of private equity fund receive, where their share of profits are taxed at a lower tax rate as capital gains rather than ordinary income.
Both measures may deter wealthy individuals from taking advantage of the tax incentives that were introduced in Italy seven-years-ago. In 2017, the Italian government announced a flat rate of €100,000.00 per tax period, regardless of how much foreign income was received. The scheme attracted thousands of people, and has brought the richest city of Italy, Milan, to the forefront.
Milan is one of Italy’s largest international banking groups and has its headquarters in the city. Rothschild & Co, one of the world’s largest independent financial advisory groups, also established their Italian wealth management division there. UniCredit is one of Italy’s biggest international banking groups and Rothschild & Co has its Italian wealth management department in Milan.
Guilia Cipollini is the head of tax planning and wealth management for Italy for Withersworldwide. She advises City professionals who are looking to relocate to Milan.
She said, “Milan is very well connected with the rest the world. There are three large airports nearby, so you can get a flight from Milan to Sao Paulo, or Los Angeles. It’s a small city that is also very liveable. It’s cosy and many clients tell me that it is easier to walk than take the subway.
Milan is considered the “engine” for the Italian economy, and the preferred location of offices of global financial companies.
Mark Harvey, the head of Knight Frank’s international department, says that most expats who are interested in taking advantage of the flat tax regime begin their search for property in Milan.
He said: “If people are going to land to take advantage of the flat tax regime, they are more likely to do so via Milan. That’s why there is such a rush to this area.”
People often move to Milan and then on to other parts of Italy. They may go north, nearer the Lakes, or south, into Tuscany. It depends where their families are.”
After Brexit, a partner at a boutique investment firm said that he had moved to Milan because of its convenient location for cross-border working and the number of international schools.
The “phenomenal” tax breaks he received helped him convince his staff to join him. He said friends and contacts are now contacting him to seek advice about making a similar decision in light of Labour’s tax plans.
“What I see as far as the influx in expats in Milan, is that it’s mainly the people who work in private equity firms making the most carried interest.” The people who are most affected by tax leakage have to be the most vigilant.
“It is a no-brainer that a nondom will leave the UK. Many private equity executives have been looking to relocate somewhere else outside the UK. It’s not difficult to have a conversation with someone about Milan. “I tell them about the tax breaks and then put them in contact with an attorney who can help them.”
Cipollini stated: “From the UK we are seeing clients from the financial sector and people who have become concerned about political stability after the spring announcement of the cancellation of the UK nondom tax regime.
It was vague and many clients moved because of the uncertainty. The announcement was perceived to be creating instability, without clear guidelines.
The flat-tax system in Italy has been around for a few years, and it is mature enough to draw residents from the UK. Cipollini stated that clients were initially hesitant about moving to Italy but are now more confident.
According to the Italian audit court’s data, applicant numbers have increased by 41%, from 803 in 2012 to 1,136 in 2022. So far, the scheme has drawn a total 3,180 applicants.
Cipollini stated: “It takes time for tax policies to be well-known, and perceived as stable. Many of our clients decided to watch the situation, and determine if the Italian immigration and tax regime would be in place.
Harvey stated that the tax regime was “gradually becoming more and more popular” and the result of the UK General Election prompted two Jersey-based family offices to inquire within the last week.
Milan has seen a boom in its property market since the introduction of tax incentives. Professionals are competing to buy a small number of properties. Harvey stated that rental properties were snapped up in a matter of hours, as so many people are looking for detached properties with outdoor spaces. The property market hasn’t yet caught up to the demand.
In the meantime, hospitality brands have been looking to capitalize on the growing interest in Milan. Soho House announced recently that it will open a six storey club in Milan. Three Hills Capital Partners is also planning to open a members club at the former residence of Versace’s executive. According to marketing materials, the club will open in the fall and provide a place for “a global gathering of extraordinary characters who mix freely”. Membership costs nearly €5,000.
Bill Thomson, who moved from Italy to Italy 36-years ago and is now the chairman of Knight Frank’s network in Italy, says that the interest in the flat tax scheme has been increasing.
Thomson stated: “It began very slowly, with only a few people, but in 2021, it started to grow.” It is now really picking up speed.”
Post Disclaimer