Should London’s tax exiles head for Spain, Italy . . .  or Wales?

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Would the thought of paying 25 per cent less income tax tempt you to consider moving to Wales? A committee reporting to the Welsh government has suggested personal tax breaks could be just the ticket for solving the country’s rural depopulation problem.

The Welsh government has had devolved powers to raise or lower rates of income tax since 2019. Glancing at recent headlines, it seems that slicing 25 per cent off income tax could tempt remote workers paying ridiculously high marginal tax rates in England to relocate and WFW (work from Wales). 

Wales, of course, has much to offer the outdoor enthusiast, from climbing to birdwatching. As an entry point, Cardiff is less than two hours from London by train, and the tax savings could easily fund a few trips to there each month.

Yet my dreams of obtaining a Welsh digital nomad visa evaporated like mountain dew when I realised that the idea, proposed by the Commission for Welsh-Speaking Communities, was largely aimed at stopping young Welsh-speaking people from leaving rural areas.

But with Welsh MPs warning that depopulation risks causing the collapse of public services, should the Senedd consider a broader incentive that applies to more people?

Using low tax rates to attract high-spending residents has international precedent. Tim Stovold, tax partner at Moore Kingston Smith, says plenty of older clients have considered relocating to villages in Puglia and Sicily in southern Italy to pay just 7 per cent tax on any overseas income.

High-earning Budget-fearing Brits are more attracted to Spain, where foreign nationals can “bend” tax rules through a special regime dubbed “Beckham’s Law”. Meanwhile, Portugal has watered down tax breaks for foreigners as the resultant property boom was pricing out local residents in Lisbon, Porto and the Algarve.

Wales has long had a fractious relationship with second-home owners for this very reason. Housing affordability is a major problem here and in other picturesque parts of the UK popular with tourists and Airbnb landlords.

The country has boldly attempted to use the council tax system to address this imbalance. Some Welsh local authorities are now charging a premium of up to 300 per cent on second homes. Early reports show plenty of properties have been placed on the market, though estate agents note these aren’t the kind of homes first-time buyers could afford.

Others fear that this measure and a proposed Welsh “tourist tax” for overnight visitors risk damaging the economy, where tourism accounts for around 12 per cent of all employment.

Incentives to draw workers in are one thing. But this week, the Welsh government finance secretary refused to rule out the prospect of raising income tax rates in future as it battles to fund public services. Scotland, which also has devolved tax powers, has already done this. Since April, Scots have been charged a 45 per cent tax rate on income between £75,000 and £125,140 and 48 per cent above that level. A Scottish worker earning £125,000 now pays over £5,000 more tax a year.

Higher taxes may be enough to make some Edinburgh fund managers to relocate to well-connected English towns across the border, but many of those deserting rural Wales are leaving because of the lack of opportunity.

The commission’s report found that 81 per cent of young people believed they would need to leave their local area for education, training or work. So, better to direct any tax breaks at businesses creating employment, not to mention improving broadband connectivity in rural areas. South and Mid Wales stand to get a boost from the £800mn Project Gigabit, meaning the WFW dream could soon be within reach for all.

Claer Barrett is the FT’s consumer editor and the author of ‘What They Don’t Teach You About Money’. [email protected] Instagram @Claerb