UK Tax System Drives High Earners to Consider Leaving, New Survey Reveals

A significant proportion of high-earning individuals in the UK are contemplating leaving the country due to concerns over high personal taxation rates, despite anticipating substantial bonuses this year. A recent survey by the Financial Times indicates that 41% of respondents are considering emigration, with an additional 12% potentially following suit in the future, often with retirement abroad in mind.

Bonus Expectations Remain High

Despite the tax concerns, bonus expectations for the spring season are at a record high. 55% of respondents to the FT’s annual bonus survey expect their bonus to exceed the previous year’s, with nearly a third (31%) anticipating six or seven-figure sums.

The £100,000 Tax Trap and its Impact

Many respondents expressed frustration with the current tax thresholds, particularly those caught in the “£100,000 tax trap.” One reader reported being stuck on a taxable income of £99,999 for seven years, opting to sacrifice their entire bonus into their pension to avoid a 62% marginal tax rate. Another highlighted the impact of student loan repayments, pushing their marginal tax rate on bonuses to 71%.

Shifting Compensation Strategies

The removal of the banker bonus cap in October 2023 has led to a shift towards performance-related pay, making up a greater proportion of total compensation packages. However, salary restraint remains widespread, with only one in three reporting an above-inflation increase to their basic pay, and four in ten receiving a below-inflation increase. Susannah Streeter, chief investment strategist at Wealth Club, notes that banks prefer to pay lower fixed salaries and higher bonuses to de-risk their business.

Tax-Efficient Investment Preferences

The majority of respondents (54%) intend to invest the bulk of their bonus in a tax-efficient manner, mirroring last year’s trend. Stocks-and-shares ISAs continue to grow in popularity, with a record 62% of readers planning to utilize them, up from 55% the previous year. Many intend to maximize their £20,000 allowance and invest a further £20,000 for their spouse.

Pension Concerns and ISA Growth

While pensions remain a popular option, concerns about future tax treatment, including changes to inheritance tax applying from 2027, are driving increased interest in ISAs. Jason Hollands, managing director of wealth manager Evelyn Partners, points to the flexibility of accessing stocks-and-shares ISAs as an added attraction. Dividend tax increases in April and potential increases to savings and rental income in 2027 are also contributing to the shift towards ISAs.

Declining Interest in Alternative Investments

Interest in cryptocurrencies has halved, with only 3% of respondents planning to allocate bonus funds to them. Investment in venture capital trusts (VCTs) and Enterprise Investment Schemes (EIS) has also fallen, despite the potential for significant tax reliefs.

Increased Focus on Saving

There’s been a notable swing back towards saving, with 20% of respondents earmarking bonus money for future goals, up from 15% last year. Saving for a house purchase or mortgage payments are the primary motivations, likely influenced by the 1.8 million homeowners facing the end of cheap fixed-rate mortgages this year.

Demographic Differences in Emigration Intentions

Younger respondents without children are more likely to consider leaving the UK, often due to being caught in the £100,000 tax trap and the loss of “free” childcare hours as income rises. One respondent noted that £100,000 is no longer a high salary, yet the UK tax system treats it as such.

Popular Destinations for Potential Emigrants

The Middle East, the US, Singapore, and European capitals like Dublin are frequently mentioned as potential destinations. For those nearing retirement, Italy and Spain are more common choices. Beyond taxation, the British weather also plays a role in relocation considerations.

Spending Habits Remain Conservative

Despite the potential for large bonuses, only 11% of respondents intend to spend their bonus money this year – an all-time low. Holidays and home improvements remain the most popular uses for discretionary funds.

Bankers Cashing In Deferred Shares

Recent regulatory changes reducing bonus lock-up clauses are prompting bankers to cash in on vested shares, with NatWest, Barclays, and HSBC share prices up by 45% or more over the past 12 months. Nearly three-quarters of respondents with vesting shares plan to dispose of them this year, prioritizing diversification and reducing risk.