Government predicted people could leave the UK if it increased these taxes – but it could be worse than expected
Tax changes risk prompting financial professionals to leave, potentially undermining the UK’s competitive edge and sustainable tax revenues.
In a research note published this week, legal firm Travers Smith noted that the UK has significantly diluted the attractiveness of its tax regime for those working in private capital.
From April 2026, Britain will have the highest headline rate of carried interest tax among the mainstream European destinations – slightly ahead of France, and significantly higher than Germany and Italy, whose effective headline rates are 28.5% and 26% respectively.
“Abolition of the UK’s generous tax treatment for non-doms – very broadly, people who are tax resident in the UK but whose permanent home is elsewhere – started under the previous (Conservative) government, but was confirmed by the incoming (Labour) government last year, and completed in April 2025,” the firm said.
“At the same time, reform of the UK’s tax system for carried interest began – first, with an increase in the tax rate for the current tax year (from a minimum of 28% to at least 32%), and then with a shift to taxation as trading income at a minimum effective rate of 34.1% from April next year.”
It is becoming clear that people are leaving the UK in response to these, and other, tax changes, the firm said.
Part of the plan?
The fact that wealthy professionals are leaving the UK due to the tax changes is not surprising: the government’s own analysis of the impact of the changes predicted that a significant number of people would leave, while also noting that predictions are highly uncertain given that they depend on the behavioural responses of a small number of people.
“If just a few more people leave than the government expected – and, perhaps even more importantly, if fewer people come – the policies will actually result in a net loss to the revenue in the years ahead,” Travers Smith said.
“Globally mobile executives might well be less willing to take up a role in the UK, or even to attend meetings there, and that will hamper the government’s growth mission.”
Solutions to some of the most acute issues may yet be found, but the government’s basic position seems unshakeable, the firm said.
“Unlike its changes to the winter fuel allowance for pensioners, and payments to those claiming disability benefits, these carried interest and non-dom changes are unlikely to be reversed.
“That’s regrettable because, in taxing carried interest at these new rates, the UK will be at the top of the range for mainstream jurisdictions. European countries with attractive inpatriate regimes, such as Italy and Switzerland, look well placed to benefit,” Travers Smith said.
“Looking forward, as the British government contemplates its options to raise more revenue in the run up to the October budget – and considers whether to impose a wealth tax – it will no doubt be conscious of the dichotomy it faces: politically easy targets may not be the best bet if the government wants to build a sustainable tax base, and prioritise economic growth.”
