The ultrarich move in herds. Just ask London.
If the campaign against abolition of the "nondom' (nondomiciled) regime is measured by the volume of noise on each side, then the verdict is already in: Britain has made a giant mistake and will rue driving away ultrawealthy individuals who pay (on average) large amounts of tax, enrich the economy with their entrepreneurial talents and fund philanthropic works. A drumbeat of reports of notable departures has grown louder after the nondom privileges ended in early April, along with predictions of the resulting fiscal damage.
The latest contribution comes from the London-based Centre for Economics and Business Research, which recently published a study commissioned by a campaign group calling itself Land of Opportunity. The report says the tax changes could cost the Treasury £7.1 billion ($9.5 billion) if 40% of nondoms — about 80,000 taxpayers — leave. Research by Oxford Economics for another recently formed lobby group named Foreign Investors for Britain estimated a cost of almost £1 billion if 32% depart. A Treasury spokesperson said it didn't recognize the figures in the CEBR report, noting that the independent Office for Budget Responsibility had "confirmed' the changes would raise £33.8 billion over the next five years. Someone is going to have egg on their face.
The truth is that no one can know for sure and vindication will only come in the shape of official tax revenue data. By that time, the nondom ships will long have sailed — to northern Italy, Dubai, Switzerland, Monaco and other tax-friendlier jurisdictions. An exodus of more than 30% is well within the bounds of possibility if what tax advisers are seeing is any guide. "I absolutely wouldn't be surprised if it's 25% plus, heading into the 40% mark,' Charlie Sosna, global head of private wealth and tax at law firm Mishcon de Reya, said on Bloomberg Radio recently. The OBR used assumptions of between 12% and 25% and cautioned that its estimates were "highly uncertain.'
Tax consultants have skin in the game and therefore aren't unbiased observers, but they also deal directly with clients, so they are better placed than most to have a reading on trends. And some of their criticisms of the policy changes are well-aimed. The nondom regime, which exempted temporary foreign residents from paying tax on their overseas income and gains, was an archaic system (with origins in the Napoleonic Wars) that was too complicated and didn't incentivize people to bring their money into the U.K. But the Labour government's replacement was a missed opportunity to design a system that would have been both more attractive to high-net-worth individuals and raised more revenue, Sosna told me.
The revised rules give a four-year tax break on foreign income and gains. "You could be a multibillionaire that comes to the U.K., sells your company, pays no tax at all and then you move on,' he said. "And the reality is the regime that they've created is attracting those people.' At the same time, four years is too short to attract longer-term entrants that might be valuable for Britain's economy and society. Making temporary foreign residents subject to the U.K.'s 40% inheritance tax was also a "massive' problem. Many nondoms were members of global families. "You're part of a much bigger puzzle so it's not just your decision, it's your whole family's wealth,' Sosna said.
At this point, discussion is probably academic: The die is cast. As the CEBR report observes, the super-rich tend to cluster. They move in herds and the drift of nondoms away from Britain is likely to have a signaling effect that will cause the trend to gather momentum. It isn't just about tax. London has already lost some cachet, with the listings market in a prolonged slump and an increase in petty crime taking the edge off the city's appeal. It's less fun being ultrawealthy in a city where you can't wear your expensive watch or jewelry on the street without undue risk.
The beneficiaries are countries such as Italy, which is attracting wealthy foreign residents with an annual flat fee of €200,000 ($225,000) — something that the free-market Adam Smith Institute, among others, has called for the U.K. to emulate. Milan has much to offer: It's the financial, fashion and design capital of Italy, packed with art and historic architecture, and with Lake Como and the Alps just a short drive away. Shame about the pizza.
Matthew Brooker is a Bloomberg Opinion columnist covering business and infrastructure.
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Japan Times
3 days ago
- Japan Times
The hottest new credit deals in Europe are anything to do with defense
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And while the stock market, with its wild 100% and 200% rallies in defense companies, may get the headlines, it is the credit markets that will provide most of the cash that Europe's manufacturers need to ramp up production and fulfill the trillions of euros worth of orders that pour in from governments for tanks, bombs and guns. Even companies that are struggling and those that are only tangentially linked to the defense industry are attracting credit investors. The bonds of Eutelsat Communications, which fits both those descriptions, have soared in recent months due to the satellite company's new strategic importance, removing it from the ranks of those deemed to be sinking into financial distress. And even companies that are far too small to tap the bond market — a list that includes thousands of businesses across the continent — have scores of potential suitors in the private-credit market looking to cut them checks. 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Direct lenders typically take a while to deploy cash, particularly when venturing into new industries, and funds that were raised a few years ago may have environmental, social and governance restrictions around investing in some types of defense companies. One fund manager said he'd expect a meaningful increase in defense-related investments to take years — perhaps a couple — rather than months. "We would tend to be cautious — we need to listen to what our LPs' appetite for those types of businesses are,' Mike Dennis, the co-head of European credit at Ares, said on Bloomberg's Credit Edge podcast, referring to the firm's limited partners. This explains, in part, why demand has been so torrid for the bonds brought to market in recent weeks: They provide credit investors with an opportunity to tap into the defense trade now. Czechoslovak, a supplier to Ukraine in its war against Russia, drew a whopping €5.6 billion ($6.5 billion) of demand for the euro tranche of its deal and $4.1 billion for the dollar tranche, according to a person familiar with the transaction. It's "a deal that would not have been possible two years ago,' said Daniel Rudnicki Schlumberger, head of leveraged finance for the EMEA region at JPMorgan Chase & Co., which was one of the banks that managed the sale. "The needs in defense are just huge,' he said in an interview on Bloomberg TV. A representative for Czechoslovak confirmed the high demand in the bond sale, without giving any further details. The Prague-based company is now also considering an initial public offering, seeking a valuation of €30 billion or more, Bloomberg reported, citing people familiar with the matter. Maxam, meanwhile, was asked repeatedly by investors about the military applications for its explosives while selling its notes, according to people familiar with the matter. A representative for Maxam said the company sold its defense business two years ago and that it marketed itself as a company exclusively dedicated to civil explosives when courting bond investors. Last month, German radar maker Hensoldt tapped into the frenzy, too. It raised double its target amount of at least €150 million in a Schuldschein transaction after the deal was significantly oversubscribed. But there are only so many European defense companies large enough to tap public bond markets, and thousands of small businesses that are key to supply chains. That's why much of the financing will ultimately come from private-credit markets. "Small companies need financing too and some of these are mom-and-pop shops that will want to expand,' said Morningstar DBRS analyst Andrea Petroczi-Urban. "That's why private credit can gain momentum because they can sit down with direct lenders, which are more flexible than traditional banks.' Historically, private-credit funds never paid much attention to the defense sector, with ESG considerations making it all the more complex for lenders to get involved. But attitudes and rules have been changing throughout financial markets, as Europe seeks to rearm itself, and several private lenders told Bloomberg that interest inside their firms has picked up markedly. For some of the firms, so-called defense-adjacent companies are particularly attractive, given the way ESG rules still limit what they can invest in. Several leading lenders such as Ares and Blackstone see an increasing opportunity in areas like cybersecurity, defense-related software, electronic components and sensors, protective equipment and training solutions, people with knowledge of the matter said. Others such as Sixth Street have not yet reached a formal view about European defense but are spending time on it. Taj Sidhu, head of European and Asian private credit at Carlyle, said he sees "compelling opportunities' in mid-market defense supply-chain companies, "where there is clear demand for the certainty of execution and flexibility that private credit solutions can provide.' Pemberton co-founder and managing partner Symon Drake-Brockman said his firm has also seen increased demand for investment in defense and defense-linked companies, and he anticipates long-term growth for the sector. Spokespeople for Ares and Blackstone said they had nothing further to add to their public comments on defense, while Sixth Street did not respond to a request for comment. 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As others follow, they'll need to figure out how to make the most of newfound interest from clients — and put in the legwork to vet obscure companies that have often never tapped public or private debt markets before. Risks abound. "While the current geopolitical situation is driving a re-assessment of the defence sector, ESG risks and socioeconomic impacts are material for investors,' Nikolaj Halkjaer Pedersen, a senior researcher at Principles for Responsible Investment, wrote recently. The Alternative Credit Council, which lobbies for private credit firms, is trying to bridge that gap between lenders and small defense firms in Europe. "Links between private credit and defense are more established in the U.S.,' said Jiri Krol, global head of the ACC. So he and his team are working with industry groups, he said, "to give private credit firms a better understanding of the needs and specificities of defense companies.' Hoops, the CEO at DWS, said it's only a matter of time before those smaller companies need capital. "As the number of orders for the big companies go up,' he said, "all of the smaller, non-publicly traded companies also need to increase capacity.'
Japan Times
4 days ago
- Japan Times
Stagflation is hitting Russia's war economy
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Moreover, real growth figures may have been exaggerated because some inflation was hidden by state-owned enterprises selling their goods to the state at administered prices. In any case, official growth has fallen this year, probably to 1.4% in the first half of 2025. Since October 2024, the Kremlin itself has begun to report that Russia is experiencing stagflation — a message that was reinforced at the annual St. Petersburg International Economic Forum in June. Improvement is unlikely. The country's financial reserves are running out, energy revenues are declining and there are increasingly severe shortages of labor and imported technology. All are linked to the war and Western sanctions. Since 2022, Russia has had an annual budget deficit of about 2% of gross domestic product, implying that it needs $40 billion each year to close the gap. But owing to Western financial sanctions, Russia has had virtually no access to international financing since 2014. 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And more recently, former Deputy Defense Minister Timur Ivanov was sentenced to no less than 13 years in prison for corruption; Transportation Minister Roman Starovoit allegedly committed suicide just hours after Putin fired him; and a gold-mining billionaire was arrested and his company was nationalized to help the treasury. These were high officials. Ivanov was a top protege to former Defense Minister Sergei Shoigu, and Starovoit was the right-hand man of Putin's close friend Arkady Rotenberg. Such developments are clear signs of Russia's economic instability. Compounding the financial pain is an extreme labor shortage, especially of qualified workers. Officially, unemployment stands at only 2%, but that is partly because many Russians have left. Since the start of the war, and especially after Putin attempted a minor mobilization in 2022, approximately 1 million people fled the country, including many young well-educated men. He has not dared to pursue another mobilization since. Now, labor scarcities are holding back production and driving up wages while Western export controls limit Russia's supply of high-tech goods (though Chinese supplies have mitigated the impact). Russia's economy is fast approaching a fiscal crunch that will encumber its war effort. Though that may not be enough to compel Putin to seek peace, it does suggest that the walls are closing in on him. Anders Aslund is the author of "Russia's Crony Capitalism: The Path from Market Economy to Kleptocracy" (Yale University Press, 2019). © Project Syndicate, 2025
Japan Times
5 days ago
- Japan Times
BOJ may exit wait-and-see mode by year-end, policy meeting summary says
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