Lombard Odier warns UK risks capital flight without stable and competitive taxation

With the next UK Budget less than a month away, speculation is mounting over potential changes to personal taxes and their impact on wealth creation.

Sophie Dworetzsky and Mark Goddard of Lombard Odier Group share their insights on how the UK’s current tax environment, from inheritance tax to capital gains and foreign income rules, could affect entrepreneurs, investors, and international wealth mobility, and what steps the Chancellor could take to restore confidence and competitiveness. 

Sophie Dworetzsky, Head of Wealth Planning UK, Lombard Odier Group, said:

‘As the forthcoming Budget is less than a month away, speculation as to what personal tax changes, and rises, it may bring, is becoming ever more intense.  With a deficit of £30bn to fill and especially gloomy figures from the OBR last week, it is common ground that tax rises will form a significant part of the story of the Budget. 

After the Autumn 2024 Budget in which, seismically, the centuries old remittance basis of taxation was abolished as of April 2025, and an entirely new regime for inheritance tax (IHT) was introduced, once again personal tax rises are fully expected. Suggestions include a wealth tax, a so-called mansion tax (which seems disingenuous to say the least in areas such as London), further increases in capital gains tax and further changes to inheritance tax. While much has been said about these and other possible tax rises, it would be rather more rational and effective for revenue raising purposes to consider the tax competitiveness of the UK.

We live an in era of increasing tax competition and starkly, in the Tax Foundation’s Center for Global Tax Policy analysis, which ranks 38 OECD member countries on tax competitiveness, the UK ranks 32 out of 38. If we are engaged in a race to the bottom, further piecemeal tinkering with capital taxes will surely see the UK ranked lower in further studies.

What is needed is a rethink and an acknowledgement that wealth creators have left since the prior Budget, and that people are internationally mobile and fleet of foot. If we wish to have a thriving economy and country which is welcoming to wealth creators and, by definition, the wealth they create, we need to first reduce instability and cease endless tax policy changes, second ensure we encourage people to establish themselves in the UK, and third ensure people wish to remain in the UK.

The foreign income and gains regime, which exempts offshore income and gains from UK tax for the first four years of residence, does not encourage long-term commitment to the UK. Combined with the catastrophic imposition of IHT on worldwide assets after someone has been resident for 10 years, this ensures that international wealth creators are not attracted to a long-term commitment to the UK.

Rumours of further changes to IHT and Capital Gains Tax (CGT) add to the impression of instability and lead to a lack of long-term economic activity. It is hoped that the OBR’s gloomy figures will serve as a clarion call to review the entire approach to capital taxation in the UK and ensure it encourages wealth creation and transfer.

If real revenue is needed, as it clearly is, the news that potential across-the-board rises to income tax are being considered is welcome evidence of the start of a rational approach. Let us hope we indeed see a rational strategy reflected in the Budget that seeks to make the UK rather more tax competitive.’

Mark Goddard, UK CEO, Lombard Odier Group, said:

‘If the Chancellor wants to retain talent, attract global investors and restore confidence among entrepreneurs, then stability, competitiveness and clarity must be at the heart of her Budget.

The abolition of the non-dom regime, combined with mounting uncertainty over future tax policy, is already driving wealth creators out of the UK. At Lombard Odier we are seeing this first-hand, as are many of the professional advisers we work with. For entrepreneurs, the shift to a residence-based inheritance tax (IHT) system, coupled with a 40% rate and reduced reliefs on business assets, is prompting many to reassess whether the UK is the best place to build and pass on their companies. Meanwhile, the new Foreign Income and Gains (FIG) regime, intended to attract talent, risks discouraging investment due to its short-term nature, and remains uncompetitive versus jurisdictions such as Italy.

At the same time, domestic business sentiment has noticeably weakened in the last 12 months. Entrepreneurs tell us they are cutting jobs, delaying investment and scaling back R&D due to rising costs, higher NICs and a volatile tax environment. For a country that wants to lead in innovation and growth, this is the wrong direction of travel.

There are decisive steps the Chancellor could take to turn the tide on this:

1. Supercharge early and mid-stage investment with bold tax incentives that reward long-term patient capital, going beyond existing VCT and EIS support.
2. Mobilise institutional capital at scale with a clearer mandate for state-backed investment bodies to anchor co-investment and fuel later-stage growth.
3. Revive the UK listings market through targeted, pro-IPO incentives, from entrepreneur reliefs to stamp duty changes, to help London compete as a global listings venue.

Above all, the Chancellor needs to ensure that the UK stops signalling instability to the rest of the world. Policy volatility is toxic for global capital. A more balanced, predictable approach to taxation, starting with meaningful IHT reform, would help keep wealth, investment and talent in the UK rather than pushing it offshore.

The competition for capital is global, and the UK cannot afford to be complacent. This Budget is an opportunity to show the world that Britain is once again serious about innovation, enterprise and growth. With clarity and competitiveness, we can stem capital flight, rebuild confidence, and restore the UK’s reputation as a world-class home for entrepreneurs and wealth creators.’