Britain's stability and its increasingly warm disposition towards wealthy 'non doms' has led to a wave of new arrivals from Europe, China and Russia. But Sophie Dworetzsky points to the example of France when warning against complacency

Life is surprising. While that is a statement of the obvious, every now and again one is struck by just how much can change in a relatively short period of time.

Take the UK for example. A few short years ago, I was given the task of giving a presentation on its attractions for wealthy resident non-domiciles (RNDs) and others, which was – to put it simply – not easy.

Life has, however, changed almost beyond recognition with more and more wealthy people, both from the EU and further ashore, relocating here at an ever-accelerating pace. Why?

Put shortly, the UK stands apart from the rest of Europe as a major international financial centre with a stable and attractive legal system, which also happens to be quite a fun place to live (weather notwithstanding). While much is made of the tax advantages, which I will come to later, the UK has a host of attractions for the international client looking for a real place to relocate. 

The relative importance of these factors varies, interestingly (but also unsurprisingly) according to where people are relocating from.

Financial markets

A huge number of people who have come to the UK in recent years are finance professionals, and the clear pre-eminence of the City is a huge pull for anyone wanting to work with or in the markets. 

A few statistics illustrate the point: the City trades more than a third of the $5trn (£3trn) daily Forex transactions; 350,000 people commute to work there daily; financial services contributed 12% of Britain's tax take in 2010-11; and London has led the Global Financial Centres Index since its inception in 2007.

In terms of economic standing, it is second only to New York. That is a powerful magnet. Clearly, international entrepreneurs are going to find more interesting deals and business opportunities here than almost anywhere else.

Economic dynamism

No, that is not a typo. The reality is that, compared to a number of countries, the UK remains a good place to set up and run a business. While we may not have had the easiest recession, recent statistics show we appear to be turning the corner, with growth rates revised upwards to 1.4% for this year and 2.4% in 2014, according to the OECD. This is in stark contrast to present eurozone forecasts.

Stable legal system

We take our legal system for granted, but for many of my clients it is a huge factor in wanting to make the UK home. Clients with assets in unstable jurisdictions – be it economic, political or personal instability – are understandably keen to have a stable jurisdiction as their 'base currency', so to speak.  

This cannot be overestimated where clients are concerned about political upheaval; for example, in southern Europe or after the Arab Spring. In this respect, the dominance of English common law for international trade, as well as the UK's ability to provide a safe haven for assets, is vital.

Tax need not be taxing

While the UK is far from a low-tax jurisdiction, it offers a number of long-established rules that can be incredibly beneficial. Though many articles are written about the remittance basis, the simple point is that, if you are non-domiciled but live in the UK, you are not taxed on offshore wealth unless you 'remit' it onshore. 

Some years ago, the Government trimmed back the advantages significantly – anyone who has been resident for seven years has to pay £30,000 for the remittance basis, and the charge increases to £50,000 after 12 years. At the time, allied with the increase in the top rate of income tax to 50%, most private client advisers were worried about a mass exodus. In fact, the reverse has happened.

However, for a few years the position looked shaky and while only a few people left for sunnier climes, the number of people relocating here fell. This is harder to prove, but it was clear that the extent of interest in the UK diminished significantly. But two or three years ago, the UK started to look like a better bet than several eurozone countries, which were facing massive tax hikes and economic stagnation. 

For example, while France has not introduced the threatened 75% tax rates for the wealthy (these having been deemed unconstitutional) French residents are subject to wealth tax on assets of more than €3m (£2.5m) at progressive rates up to 1.5%, in addition to income tax and capital gains tax.  

Other eurozone states, including Greece and Spain, have also imposed significant tax increases – the former hiked corporate taxes to 26% from 20% while the latter's top rate of income tax stands at 52%, the third highest in Europe. 

In addition, Spanish residents may be subject to extra regional taxes, significantly increasing the overall rate. Even US taxpayers, who remain subject to tax on their worldwide assets wherever they live, can find the UK tax efficient simply because they are not exposed to US state taxes in addition to federal taxes.

Meanwhile, the UK seems to have had a change of heart and has passed a number of measures that show a friendly disposition towards non-doms. Not least because in April 2012 it introduced 'business investment relief', which encourages investment in the UK. This permits UK RNDs to use offshore wealth to invest in UK trading companies without being subject to tax on remitting the funds – all while being subject to meeting several conditions. 

While this does not allow portfolio investments in main market-listed companies, it has allowed smaller private equity investments and, crucially, encouraged non-doms to expand UK business activities. 

There is a possibility that it will be widened next year to allow investments in partnerships, which would be welcome. In addition, income tax rates have fallen to 45% and the corporate tax rate is set to reduce to 20% in 2015.

Investor visas

While those relocating from the EU need not concern themselves with visas, the investor visa programme has helped others wishing to base themselves in the UK, and we advise a number of Russian, American and Arab clients on these. 

Investor visas require investments into the UK of at least £1m. The class of acceptable investments needs to be monitored carefully and it is vital to make sure the minimum level is maintained, which can be complicated when investments fall. That notwithstanding, the investor visa system is very attractive, with a 78% rise in the number of successful applicants in 2012, headed by Russians and Chinese.

London property

So it is no surprise that the top end of London's residential property market seems downfall proof. The Office for National Statistics published a report in September showing a 9.7% increase in house prices while, according to the Knight Frank Prime Global Cities Index, top-end residential prices rose 7% in the year to September. It seems London property is viewed as simply another currency and, in line with diversification, wealthy investors choose to spread their portfolio to include that currency.

The attraction of property entices an ever-greater number of newcomers and so makes the UK, especially London, ever-more attractive. The large number of Russian, Chinese and European clients who have moved here mean these communities are more vibrant and well served by advisers and services (from restaurants to shopping to concierge services) so new arrivals feel at home.  

Yet the most intangible factor, and one of the most important, is lifestyle. The prestige of a UK base, and the depth of cultural, educational and entertainment facilities here is a very significant factor that often tips the decision in favour of the UK. That and the good shopping.

Avoiding complacency

I started by recalling how different the picture is now compared to four years ago. We need to make sure we don't return to those days. While the Government has done much to persuade the internationally wealthy that the UK is a sensible and stable jurisdiction, it does not take much to undo that.

We need to show real commitment to maintaining the remittance basis, and to reducing the huge complexity and, at times, uncertainty of our tax system. The recent introduction of a statutory residence test is welcome.  

But there remains significant uncertainty about how the general 'anti abuse' rule will be applied, and there are many rumours about what the Autumn Statement may contain.

If Chancellor George Osborne does decide to impose capital gains tax on non-resident property owners, as is speculated, let's hope it operates logically and does not trigger tax on historic gains. The idea of taxing non-residents on UK property need not be controversial, but the basis for the rule must be fair and should not open the door to sweeping tax changes.  

So while the UK is riding a wave, we need only look across the Channel to learn how easy it is for a country to scare people off, and how incredibly difficult it can be to reverse that. We nearly messed up in 2008, but fortune favoured us. Now is the time for us to help fortune along.

Sophie Dworetzsky (pictured) is a partner at Withers.