UK awaits impact of US President Biden’s tax plan

Economy & Politics | International | Latest News | Legal | Reports

Joe and Jill Biden

President Joe Biden’s tax plan will be felt hard by the highest earning Americans in the UK but may halt an exodus in the event of increased UK taxes, say tax and advisory firm Blick Rothenberg. Daniel Hyde, a partner at the firm spoke to Business Leader regarding the news.

It may also pave the way for a post-Covid migration from the big US cities in search of a more favourable tax regime.

This is a two-pronged plan to ‘tax the rich’. An increase in the highest Federal tax to 39.6% for taxpayers with incomes over $400,000, combined with an increase in the capital gains rate from 20% to 39.6% for taxpayers with incomes over $1,000,000. This would be the biggest attack on the wealthiest in at least a generation. In fact, with an additional investment income surcharge the rate becomes 43.4%, which critically means investment gains are taxed higher than earnings. This is psychologically important.

High income Americans living in the UK have been used to UK rates typically exceeding US Federal rates for a very long time and seeing the higher UK tax rates as the additional cost of their dual status. Whilst UK capital gains tax rates stay at 20%, this additional 23.4% tax will be felt very hard indeed on this side of the Atlantic.

In the lead up to the UK budget, where the government failed to show its hand in respect of capital gains taxes, we were preparing for an exodus of wealthy Americans who have made the UK their permanent home being forced to leave by uncompetitive capital gains tax rates. If the Biden administration can force these proposals through, a hike in UK capital gains tax may no longer be a persuasive factor. It may simply be a question of paying Her Majesty over than the US Treasury Department.

If UK capital gains tax rates remain competitive, I anticipate an increasing number of conversations around the renouncement of US citizenship in favour of permanent settlement in the UK.

But the US imposes a ‘one off’ exit tax on individuals renouncing US citizenship. In most cases, President Biden’s proposals will increase the cost of that exit tax. This will be a major consideration for Americans already living here, whose first take on the President’s proposals is that the UK might appear to be a more attractive – or at least tolerable – tax jurisdiction for those already here.

The impact of these proposals for Americans living in high taxed states and cities cannot be underestimated with taxpayers in New York or California for example being tax close to or over 55%. Senior executives in fund management industry, especially in New York City, may find these rates untenable and may look to London as an attractive alternative especially in light of the non-Dom regime. Of course, a move to London doesn’t remove the Federal tax but 43.4% may still look a lot more attractive than nearly 55% and even the threat of higher UK taxes could still place London as a possible destination.

Did you enjoy reading this content?  To get more great content like this subscribe to our magazine

Reader's Comments

Comments related to the current article

Leave a comment

Your email address will not be published. Required fields are marked *