1 January 1970Re/insurance

Tax residency: London calling

The announcement near the end of July by Lancashire Holdings that it would relocate its corporate domicile from Bermuda to London came as a shock. Not so much that a company was redomiciling away from Bermuda—they tend to come and go—but that it had chosen to domicile in the UK. Few countries in the world have less accommodating tax regimes than Britain.

I ought to know; I was relocated to Britain eight months ago. Within a few weeks, my personal income tax rate had risen to 48 percent, and I barely earn enough to keep the ‘wolf from the wigwam’, in P.G Wodehouse’s phrase. I now, apparently, work for the British government until mid-August every year, since I must pay a plethora of other taxes on top of the income tax bite. Albert Einstein said: “The hardest thing in the world to understand is the income tax”, but it doesn’t take a genius to feel that way.

When Allied World moved its domicile from Bermuda to Switzerland and its corporate headquarters to New York City, a leading Bermuda accountant privately described the cause as “chief executive preference”. Scott Carmilani, Allied World’s CEO apparently didn’t enjoy working in Bermuda, and the same was true when Evan Greenberg moved ACE to Switzerland.

Something similar seemed to be at play in Lancashire’s case. Jonny Creagh-Coen, Lancashire’s head of investor relations, said the change of domicile would give the company greater fl exibility in making strategic decisions. “Board meetings can now be held in London,” he told Reuters. “Every time we have to make a serious decision, it doesn’t mean the CEO has to go offshore to make that decision.”

Lancashire will enjoy a three-year tax holiday in the UK, after which time it will be in the same boat as the rest of us. I’d bet you a dollar that by the time the three years is up, the company will have demonstrated a preference to move somewhere else.

It should be stressed that Lancashire will not relocate its Bermuda operations, as Allied World did not. Nor did ACE, for that matter, although its remaining rump writes rather less business from Bermuda than it once did.

What we have here is a case of cake and its simultaneous consumption. Everyone wants the tax breaks that Bermuda offers, by virtue of its system of indirect taxation. Not everyone, apparently, is willing to forego the advantages of living in a big city. That’s life, though: it’s one or the other.

The advantages of the Bermuda lifestyle are legion. It’s not just sun, sand and sea, although those are powerful ingredients. It’s not just the zero corporate tax rate, since the cost of living in Bermuda is as high as an elephant’s eye, which cuts into the tax savings. Employees at even the lowest grades make salaries that most others in the world would regard as fantastical. A day-old loaf of bread costs six bucks.

But we live in an age when people want it all. Chief executive offi cers are in a position to have it all, and many of them do. It’s a great shame, and somehow seems wrong when one person’s preference dictates a company’s fortunes. Everyone talks about their “management team”, but the decision to redomicile is rarely a team effort.

Moving back to Britain has been catastrophic for my financial health. Let us hope that the same does not apply to Lancashire Holdings.