TheChek News Flow

Favourable tax regime is drawing wealthy newcomers and changing the city’s dynamic

Walking down the cobbled streets of Milan’s trendy Brera district on the last day of March, one senior banking executive spotted three international removal trucks.

“It was incredible,” he said of an influx of new residents in the city ahead of the end of the UK tax year on April 5. “There was an explosion of arrivals.”

Italy’s welcoming tax regime has drawn throngs of wealthy newcomers to the country’s financial centre, bringing new strains to the city, particularly in a real estate market where demand far outstrips supply and that is now the focus of a sprawling corruption investigation.

But it has also given Milan a buzz some liken to London in the 1990s — with a dolce vita twist.

Milan’s transformation has its roots in a series of 2016 tax breaks under Italy’s then prime minister Matteo Renzi, whose centre-left administration set out to reverse the country’s brain drain and lure wealthy foreigners.

But the shift has gained momentum, particularly in the past 12 months after the UK’s decision to abolish its 226-year-old rules for non-domiciled residents, exposing their overseas assets to a 40 per cent inheritance tax, and their foreign income and gains to the wider British fiscal regime.

At the same time, Italy has been rolling out the red carpet to the world’s wealthy. A new foreign resident — or a returning Italian who has lived abroad for at least nine years — can pay a flat tax of €200,000 a year on any foreign income and assets for up to 15 years, and be fully exempt from inheritance tax on foreign assets during that period. 

“A few years ago the only people that lived in Milan had known each other since they were children, it was very local,” said Lydia Forte, group director of food and beverage at Rocco Forte Hotels. “Now, there are a lot of people moving there who have no connections to Italy.” 

Those who have left London for Milan include Nassef Sawiris, Egypt’s richest man and co-owner of English football club Aston Villa; Richard Gnodde, vice-chair of Goldman Sachs; and Yoël Zaoui, co-founder of advisory boutique Zaoui & Co. Rolly van Rappard, co-founder of private equity group CVC Capital Partners, is weighing a move, while Bernard Arnault’s son Frédéric is moving between Paris and Milan having taken the top job at LVMH-owned Loro Piana.

They are just the tip of the iceberg. The flat tax scheme has attracted several thousand people, while more than 100,000 individuals, mainly Italians, have benefited from a scheme for those arriving from overseas that gives a 50 per cent reduction on taxable Italian income, with most moving to Milan.

“The big market is people who are 45-70 years old,” said Gary Landesberg, co-founder of The Wilde, one of a new crop of London-style members’ clubs that have opened in the city in recent years, adding that “you’re not just talking about billionaires”.

Nadim Nsouli, founder and chief executive of Inspired Education Group, said Dubai and Milan were the top destinations for the roughly 200 pupils out of a total of 4,500 at its UK private schools who have relocated overseas in the past few years. Of new joiners at its 10 schools in Italy, four of which are in Milan, 45 per cent are typically foreign nationals, with the largest cohorts coming from the UK, the US and France. 

While those who have quit London for Milan give various reasons for their moves, many speak of a combination of the “push” factor from the UK and the “pull” factors of Italy, with fiscal sweeteners only part of the equation.

Citing the quality of life in the Italian city as a draw, one private equity executive who has made the switch said he “wouldn’t do this to move to Dubai”, where there is no personal income tax, and that “if Frankfurt had offered the same deal I would not have gone to Frankfurt”.

With the UK recently raising the tax on carried interest — private equity managers’ profits on successful deals — from 28 per cent to an effective 34 per cent by treating it as trading income, Italy’s flat rate of 26 per cent has made it an attractive destination for PE professionals and venture capitalists who are not on the flat tax regime. 

As part of a wider European expansion, alternatives firms including CVC, Preservation Capital and Ares have been opening and expanding offices in Milan in recent years, joined by hedge funds, including Capstone Investment Advisors and Steve Cohen’s Point72 Asset Management. Private capital executives said they saw opportunities to invest in and lend to Italy’s abundance of family-owned mid-market businesses.

This trend has given bulge-bracket banks such as Goldman Sachs added incentive to widen their own footprints in the city to service rich clients. Such moves come as international lenders have been shifting activity from London to Paris, Milan and Frankfurt to continue serving EU clients post-Brexit, after the UK lost so-called passporting rights. 

Some of those who have moved to Milan are part of the peripatetic super-rich for whom the Italian city is one of several places they might spend a few months a year. Others form part of a younger generation who are putting down roots.

“Milan is a great city to live in and has amazing connectivity,” said John Nery, the 41-year-old managing partner at private equity firm Squircle Capital, who moved to Milan five years ago from Qatar. “Portofino is a two-hour drive; you can be having lunch on the terrace of Villa d’Este on Lake Como in 45 minutes; and in three hours you can be in St Moritz, Megève or Verbier.”

The international newcomers have added depth and variety to Milan’s social scene, reflected in a clutch of new venues that cater to them. Before The Wilde opened its doors last year, international members club Casa Cipriani launched in Milan in 2022, while Soho House is developing an outpost in the city. Contemporary art gallery Thaddaeus Ropac is opening a space in the Palazzo Belgioioso this autumn, and Rocco Forte Hotels’ Carlton Milan is due to open in November.

Some Milanese complain that the influx has made their city “less authentic” and “a little bit over the top”. One banker said tensions had arisen at his company because new arrivals from the UK were on London salaries, far higher than their local counterparts, and criticised the new members’ clubs as “not really the Italian way of doing business”.

A second local dismissed the clubs as being full of bankers and private equity executives, and only existing for those who could not get into old-school Milanese gentlemen’s clubs such as the Clubino and the Circolo dell’Unione.

Even those who are enamoured with Milan complain of poor air quality and few parks, and note that the city empties out at weekends and in August. And while Milan is having a moment, Italy is not the most thriving of global economies and cannot offer the same opportunities for ambitious young people as there are in places such as the US or the UAE. 

“It’s still very bureaucratic,” said Nsouli of Inspired Education Group, notably around hiring and labour laws. “The bureaucracy is one thing they need to address if they really want to become a global city.”

Nowhere is the flow of newcomers more keenly felt than in the real estate market, where prices have been pushed up by people accustomed to Kensington, Notting Hill and Mayfair prices. Several suites at the Four Seasons and the Mandarin Oriental hotels in Milan’s historic centre have been occupied by financiers who relocated from London. 

Milan’s property scene has been struggling to satisfy demand for “trophy assets”, said Danilo Orlando, head of residential at estate agency Savills Italy.

Purchase prices for 600 square metre plus penthouses in central locations with pool, gym and concierge start at $8mn-$10mn, according to Savills, while rents in Milan’s prime residential sector have risen more than 14 per cent over five years, against a 7 per cent increase in Rome. However, Milan remains far behind London, with an average price per square foot of €1,520 against €1,920 in the UK capital.

The news is not all positive. Manfredi Catella, who as chief executive of developer Coima helped redevelop the former industrial Porta Nuova district into Milan’s most exclusive neighbourhood, was among six people placed under house arrest in July as part of a sprawling probe into Milan’s rapid real estate expansion. Although all six were released this month following an appeal, they and another 20 people, including mayor Giuseppe Sala, remain under investigation.

Coima is redeveloping historical buildings in the city centre, including turning a block between the Mandarin Oriental and Bvlgari hotels into luxury residences and offices.

Catella said internal checks had been carried out to confirm “the regularity” of the company’s actions and these could be “clearly represented in court”. Sala said in July he was “shocked” and that he “disavowed” the prosecutors’ interpretation of events.

The legal developments are unlikely to stop the influx of newcomers and their need for housing. Marco Cerrato, a partner at law firm Maisto e Associati, said one client had difficulty finding a large house in the city “because Milan is made up of apartments”, so instead bought one an hour’s drive away in Lugano, Switzerland.

But when it comes to the hotels, restaurants and other luxury services that the new arrivals desire, Cerrato believes the city is “fully equipped” because of the fashion and design contingents. Milan, he says, “was already ready”.