Agefi Luxembourg - février 2025

AGEFI Luxembourg 6 Février 2025 Economie / Banques “One millionaire leaves Britain every 45 minutes under Labour” – The Telegraph , 8 January 2025. A s the global population of high-net-worth individuals (HNWIs) grows and their wealth expands (1) , the world is on the cusp of the largest intergenerational transfer of family wealth in his- tory – all set against a backdrop of profound uncertainty. While pri- vate wealth continues to burgeon, the economic situation of some major countries languishes and, as a consequence the world is witnessing an unrivalled migration of HNWIs. This mul- tifaceted shift of wealth is taking place in a global unstable climate, where some go- vernments tend to redefine the contrat so- cial through major reforms (including the review of domestic tax regimes). The quest for stability and safeguarding of as- sets, prompting the relocation of HNWIs, might impact some European traditional “capitals of wealth” – and also generate opportunities. This introductory article of a series devoted to some of the current key trends, opportunities and challenges of the international wealthiest families aims to unravel a complex myriad of factors in- fluencing themigration of HNWIs, examining the interplay between economic stability, tax regimes, quality of life, and geopolitical dynamics. Supported by the strong performance of the fi- nancial markets, the number of wealthy individ- uals and their fortune grew in recent years. This trend has resulted in a surge of ultra HNWIs, who, while making only 1.1% of the global HNWIs population, hold assets exceeding 49 trillion US$ in value – an amount surpassing the combined gross domestic product ( GDP ) of China and the United States ( US ) (2) . However, in the coming years, the increase in HNWI num- bers is expected to stem largely from the extraor- dinary transfer of wealth accumulated by baby boomers during the prosperous post Second World War era ( Trente Glorieuses ): the so-called “Great Wealth Transfer” (3) . Over the next decades, an extraordinary 83.5 tril- lion US$ of private wealth (4) is intended to pass down from the richest generation in history to the next generations (5) . In this context, now and in the near future, the main challenge of HNWIs globally will be to organise the transfer, protect and be in a position to continue to grow their es- tates amidst political and economic instability - and to seize opportunities allowing them to reach these objectives. In 2024, with more than 75 countries which held major elections, representing more than 50% of the world’s population, the number of elections worldwide has reached a record as historic as the “Great Wealth Transfer” (6) . This unprece- dented electoral wave since the creation of uni- versal suffrage occurred in a post-pandemic context where armed conflicts are affecting the global economy. Some established economic hubs seem to face sig- nificant challenges leading to sensitive decisions to make up for public deficits. In some cases, HNWIs may be victims of the reshaping of the so- cial contract for which they may have the feeling to pay the (tax) price. Together with other factors including political (in)stability, domestic secu- rity, quality of infrastructures and education or health offering, some tax reforms are causing HNWIs to wonder about the jurisdictions (and sometimes the regions) where their future will be shaped (both for their personal residency and the jurisdictions where they will hold and man- age their assets going forward). The nervousness of the wealthiest in the face of political and economic instability led already to the relocation of an unprecedented 128,000 HNWIs in 2024 (7) . This reshaping of the private wealth landscape should even be exacerbated with at least an additional 135,000 HNWIs ex- pected to flee in 2025 from their home jurisdic- tions for more favourable lands. Some countries may bear the cost of this exodus – two of them being the United Kingdom and France. What is the genesis of the migration of HNWIs and which European jurisdictions are likely to be most affected? United Kingdom and economic instability When considering HNWIs in Europe, the United Kingdom ( UK ) and particularly Lon- don, stands out. The City’s ascent as a private wealth capital is rooted in its financial history, cultural depth, and opulent lifestyle. The Bank of England’s founded in 1694 laid the ground- work for London’s financial services, which ex- panded to meet the British Empire’s demands, leading to the birth of modern private banking. The City has since become a financial titan, with deregulation in the 1980s propelling it into a new era. London’s allure for HNWIs extends to its luxury living, with a vibrant art scene, high-end accommodations, a luxury property market and an unparalleled domestic network of banks and financial institutions all enhanced by a favourable tax regime for non-domiciled residents ( UK non-dom regime ), cementing its status as the European capital of wealth. This unique centuries-old tax regime allows in- dividuals (i.e. non-doms) who are tax residents in the UK but not domiciled therein to be taxed only on their domestic income/gains and over- seas income/gains only if repatriated to the UK (i.e. so-called “remittance basis”) for a maximum period of 15 years (also applied for inheritance tax purposes on non-UK situs assets). The regime is predominantly used by high-income earners (and a small portion of rentiers) (8) of whom more than 50% are living in London (9) , a city of “residence” for more than 225,000 HNWIs in 2023 (10) . However, since the 2008 financial crisis, the UK, home to Europe’s top financial centre (11) and 651,700 HNWIs as of 2023 (12) , has seen its competitiveness slowly decline, a situation ex- acerbated by Brexit and the Covid-19 pandemic. This re- duced appeal has prompted 16,500 HNWIs to leave between 2017 and 2023 (13) , with no immediate signs of recovery. In its first budget in 14 years, the Labour govern- ment confirmed a sweeping reform of the long-standing UK non-dom regime, initially announced by the Conservatives to address the 22 billion £ “black hole” in public finances. This race to bail out may not have the desired effect by driving HNWIs benefiting from this scheme to flee the country. According to Oxford Economics, 63% of non- doms are considering a move abroad within two years (14) . While taxes are not the sole reason for their departure (15) , they remain a significant fac- tor (16) pushing individuals to relocate for more favourable lands (17) . The anticipated exodus, po- tentially reaching 9,500 by 2024 (18) , could impact the British economy, defying government expec- tations. Indeed, in 2023, non-doms, though just 0.1% of the UK population (19) , contributed 8.9 bil- lion £ in (income and capital gains) taxes and na- tional insurance contributions (20) , accounting for 1.9%of total income generated by the administra- tion on such taxes (21) . This willingness to relocate is exacerbatedmainly by the reform of the inheritance tax, leading non- doms to be subject to such tax on their worldwide assets at the rate of 40% as from6April 2025 - one of the highest in the world. The departure of HNWIs from the UK could fur- ther strain the nation’s faltering economy by driv- ing away a skilled and entrepreneurial group alongwith their substantial (fiscal) contributions. Indeed, this migration out of the British territory may lead in the (near) future to a pure loss of rev- enues for the country, estimated at 900 million £ by 2029/2030 in the worst scenario (22) . Concerned by the exodus of its wealthiest taxpayers, the UK Chancellor announced at the World Economic Forum in Davos a “generous” temporary repatri- ation facility (23) . But is not that too little, too late? Questioning on France’s political steadiness Across the Channel, the aftermath of the Euro- pean legislative elections in June 2024 has plunged France into a period of political uncer- tainty, marked by the dissolution of parliament and the appointment of two newprime ministers in just a fewmonths. This instability is set against a backdrop of economic stagnation and poorly managed public indebtedness challenging the na- tion’s ability tomake decisive policy decisions, as evidenced by the contentious debates over the 2025 budget bill. The French government’s response, particularly the expected introduction of exceptional taxmea- sures targeting not only the wealthy but also the upper-middle class and large companies, would be a direct consequence of the need to address the growing public deficit, which lags increasingly behind the Eurozone average (24) . These fiscal pres- sures, combined with the world’s highest inheri- tance and gift taxes and rising inflation, paint a picture of a nation struggling to balance its books, with the affluent being called upon to shoulder a significant portion of the burden. As a consequence, wealthy French individuals are assessing all their options (including a poten- tial relocation). However, a departure is not al- ways easy to organise and mainly depends on the profile of the HNWIs and the composition of their wealth. Mobility as key factor of the Great Wealth Migration Even with instability and uncertainty commonly underpinning this global movement trend, the decision to relocate remains personal and contin- gent on each individual’s circumstances. Factors such as the composition of the wealth, location of (private/familial) assets, active involvement in asset management and personal ties of HNWIs with the jurisdiction where they are currently lo- cated emerge as essential considerations for as- sessing HNWIs’ capacity of mobility for relocation purposes. Despite each individual’s unique situation, certain “categories”may be identifiedwithin theHNWIs population. As an illustration many UK-based HNWIs have a significant part (if not all) of their wealth located outside of theUK. This is especially the case for individuals benefiting from the UK non-dom regime. Bearing in mind the fact that most of these families are not originally from the UK, it makes a smooth exit out of the country eas- ier – even though the holding andmanagement of “offshore” assets further to the exit still need to be carefully reviewed and analysed in light of the ju- risdictions where the (ultra) HNWIs will become tax resident and where the assets are located. That being said, the personal situation of families (including children at school – if applicable) re- mains a topic to be taken into consideration. Fam- ilies intending to stay in the UK should ideally undertake a minima a review and reorganisation of their estate byApril 2025 (e.g. realisation of la- tent capital gains, review of trust structures, etc). In France, the circumstances are generally differ- ent. While it is more difficult to access recent data, it seems that the exodus has not really started yet. Wealthy families still resident in France are cur- rently busy in analysing their options. That being said, most of them are French nationals having still (strong) ties with the country. They may still own andmanage French-headquartered group(s) which usually represent a significant portion of their wealth. In that case, the migration may be a challenging exercise. Additional bad sign – prominent French en- trepreneurs are currently commenting on the po- tential exceptional tax (25) which may be introduced for domestic companies having re- alised a turnover exceeding 3 billion €. This may increase the risk of relocation of some prominent French companies. For those having already sold their business and realised a liquidity event, the exit (if not already done) may be easier to organ- ise and to make viable. As some nations grapple with this migration, oth- ers stand to gain—but which will they be? Our next article will be dedicated to identifying the “trendiest” attracting jurisdictions for HNWIs and especially ultra HNWIs. Yacine DIALLO Partner Tax Pierre-Philip LEROUX-MOGA, Associate Tax Charles Russell Speechlys – Luxembourg (Avocats) Private wealth in motion: The great exodus 1) Capgemini Research Institute, “World Report Series 2024, WealthManagement ” . 2)Altrata,“WorldUltraWealthReport2024”. 3)“TheGreatestWealthTransferinhistoryishere,withfamiliar (rich)winners”, TheNewYorkTimes ,14May2023. 4)UBS,“GlobalWealthReport2024”. 5) Allianz Research, “Surprising relief, Allianz Global Wealth Report2024”. 6) “Quels pays votent en 2024 et quand votent-ils ?”, Courrier international ,10février2024. 7)“TheHenleyPrivateWealthMigrationReport2024”,Henley &Partners,18June2024. 8) Arun Advani, David Burgherr, Mike Savage, Andy Sum- mers, “The UK’s ‘non-doms’: Who are they, what do they do, and where do they live?”, CAGE Policy Briefing no. 36, April 2022. 9) HMRevenue & Customs, “Statistical commentary on non- domiciledtaxpayersintheUK”,9July2024. 10)Henley&Partners,“World’sWealthiestCitiesReport2024”. 11)TheGlobalFinancialCentresIndex34,28September2023. 12) Henley & Partners, “Henley PrivateWealthMigration Re- port2023”. 13)AndrewAmoils,“London’sWealthExodus”. 14)“Assessingtheimpactofproposedreformstothenon-dom regime, a report for foreign investors for Britain”, Oxford Eco- nomics,September2024. 15)A.Solimano,“GlobalMobilityoftheWealthyandtheirAs- sets:AnOverview”,IMC-RP2018/2. 16)UBS,“GlobalFamilyOfficeReport2024”. 17) Enea Baselgia, Isabel Z. Martinez, “Mobility Responses to SpecialTaxRegimesfortheSuper-Rich:EvidencefromSwitzer- land”, CESifoWorkingPaper No.11093,April2024. 18)DominicVolek,“TheGreatWealthMigration”,TheHenley PrivateWealthMigrationReport2024. 19) i.e. 74,000 out of the 68,300,000UKpopulation inmid-2023 (sources:HMRevenue&Customs,“Statisticalcommentaryon non-domiciledtaxpayersintheUK”,9July2024;OfficeforNa- tional Statistics, “Population estimates for the UK, England, Wales, Scotland and Northern Ireland: mid-2023”, 8 October 2024). 20)HMRevenue&Customs,“Statisticalcommentaryonnon- domiciledtaxpayersintheUK”,9July2024. 21) i.e. a total revenue of income tax, capital gains tax and na- tional insurance contributions of GBP 469,36 in 2023 (source: HM Revenue & Customs, “HMRC tax receipts and National InsurancecontributionsfortheUK”,21November2024). 22)“Assessingtheimpactofproposedreformstothenon-dom regime, a report for foreign investors for Britain”, Oxford Eco- nomics,September2024. 23)“RachelReevestosoftenUKnon-domtaxreforms”, Finan- cialTimes, 23January2025. 24) “Euro area government deficit at 3.6% and EU at 3.5% of GDP”,Eurostat,22October2024. 25) “C’est quoi cette surtaxe pour les grandes entreprises qui fait bondir les grands patrons français ?”, Capital , 29 January 2025. L e 7 février 2025, l'agence de notation de crédit Moody's a confirmé la no- tation «AAA» du Luxembourg avec perspectives stables. Dans la mesure où, en 2024, le rythme de crois- sance des recettes a dépassé celui des dépenses, l'agence a revu ses projections concernant le solde des administrations publiques ainsi que le niveau de la dette et s'attend, à présent, à la sta- bilisation de cette dernière en 2025-2026. Moody's souligne ainsi l'importance de finances publiques solides et prévoit une croissance sou- tenue pour le pays. L'agencemet aussi en avant la solidité des institu- tions et de la gouvernance luxembourgeoises. Ces dernières figurent parmi les mieux notées par l'agence, notamment grâce à la capacité des auto- rités à gérer efficacement les risques pour l'écono- mie, les finances publiques et le secteur financier. Source : ministère des Finances Moody's confirme le «AAA» du Luxembourg KirchbergLuxembourg @PhilippeSchroeder