Enjoy the party while it lasts, London.

Photographer: Peter Macdiarmid

The Rich Could Fall Out of Love With London

Mark Gilbert is a Bloomberg View columnist and writes editorials on economics, finance and politics. He was London bureau chief for Bloomberg News and is the author of “Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable.”
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London has never been more popular as a home for the world's wealthiest people. With an election looming in May, however, the U.K. capital will struggle to maintain its attractiveness in competition with the likes of New York and Singapore -- whichever party or coalition ends up running Britain.

Many nations operate schemes that let the wealthy dodge immigration restrictions in return for cold, hard cash. The U.K. offers a Tier 1 visa in return for investing $3 million in shares of publicly traded companies or government debt. In the first nine months of last year, 160 Russians opted to do just that. Applications shot up from 96 in the year-earlier period as oligarchs sought an escape route from sanctions against Russia, according to a new report from real-estate broker Knight Frank LLP. Of the 703 total Tier 1 applications to live in the U.K., almost half came from Chinese investors.

It's a safe bet that the bulk, and probably the entirety, of that influx of wealthy newcomers will settle in London. Birds of a feather flock together, and the rich have been flocking to London in recent years. For the ultrarich, which Knight Frank defines as those with net assets of at least $30 million (excluding their primary residence), London leads. It's home to 4,364 of the world's wealthiest, topping New York's 3,008 and Hong Kong's 2,690.

More than 114,000 millionaires moved to the U.K. in the past decade, more than double the 45,000 relocating to Singapore or the 42,400 who chose the U.S., Knight Frank said. This makes  London the world's most important city for the rich, followed by New York, Hong Kong, Singapore and Shanghai. The next five on the most-favored-city list are Miami, Paris, Dubai, Beijing and Zurich.

Those wannabe Brits, though, may end up regretting their choice. A U.K. election will be held on May 7 and opinion polls say the outcome is too close to call. The ruling Conservative Party has promised a referendum on whether Britain should quit the European Union; Europhiles fear for the U.K.'s economic future if it abandons the bloc and tries to go it alone.

The Labor Party, meanwhile, is threatening to soak the rich if it wins. Its election pledges include higher income taxes for the well-paid, as well as an annual levy on expensive houses, which it dubs a mansion tax. The wealthy who are mobile enough to abandon economies whose prosperity is in question may soon have an incentive to move offshore. 

According to a new Knight Frank Wealth Report, which surveys 500 private bankers and wealth advisers overseeing more than $1.7 trillion, the wealthy are aware of the risks:

Family succession issues were, in fact, the number one worry, with 85 percent of respondents saying their clients were concerned about the handover of family wealth to the next generation. A potential increase in wealth taxes (81 percent) and increased government scrutiny of wealth (80 percent) were the second and third most vexatious issues, according to our survey results.

Those survey results, says Knight Frank, could mean New York will overtake London as the most important city for the ultrarich in the coming decade:

Source: Knight Frank

"When a man is tired of London, he is tired of life, for there is in London all that life can afford," said Samuel Johnson in 1777. If the post-election climate threatens to make life in Britain less affordable, either because of Brexit or higher taxes, London may become a less desirable destination for the wealthy -- and the capital city will be just a little bit poorer for it.

(Corrects time reference in fourth paragraph.)

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Mark Gilbert at magilbert@bloomberg.net

To contact the editor on this story:
Paula Dwyer at pdwyer11@bloomberg.net