The government is set to scale-back its crackdown on non-dom status amid fears of a wealth exodus from the UK.
The end of non-dom status in the UK was first announced under the previous Tory government but chancellor Rachel Reeves confirmed in her Autumn Budget that the new Labour government will continued with the policy.
Reeves also wants to add overseas earnings to someone's estate for inheritance tax purposes.
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This is has raised fears that wealthy individuals, already hit by falling capital gains and dividend allowances under the Tories, will exit the UK. Analysis by Henley & Partners shows there was a net outflow of 10,800 high-net worth individuals from the UK in 2024.
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This is a blow to Reeves who is banking on economic growth to boost the UK’s prospects and reduce its deficit.
Marc Acheson, global wealth specialist at Utmost Wealth Solutions, said many clients have been exploring other jurisdictions in the EU and UAE, adding: “This community would rather not leave the UK and contribute significantly to the exchequer, so any review of those changes, particularly with reference to the erosion of IHT protections on existing settlements would be welcome.”
Critics have warned that the scrapping of non-dom status, due in April 2025, will be another threat to growth and now the chancellor may actually be listening.
What is non-dom status?
Non-dom or non-domiciled status is a legal term for where someone’s tax status is.
It allows wealthy individuals to live in a country such as the UK for a set period each year but pay tax in another jurisdiction, typically where rates are lower.
A UK non-dom would only pay UK tax on earnings taken in this country while income from elsewhere would benefit from the lower rates.
Well-known non-doms include former Prime Minister Rishi Sunak’s wife Akshata Murty.
But critics claim non-dom status is unfair as individuals benefit from UK services while keeping much of their wealth out of the country.
Is non-dom status changing?
There were already plans to scrap non-dom status under the previous Conservative government.
Under the changes, those who moved to the UK from April 2025 would not have to pay tax on money they earned overseas for the first four years and would pay the same tax as everyone else if they continue living here.
Existing nom-doms in the UK would be allowed a two-year transition period, during which they would be encouraged to bring their foreign wealth into the UK.
Labour’s October 2024 Budget confirmed the end of non-dom status but Reeves extended the transition period for current non-doms to bring money onshore from two years to three.
The chancellor also said foreign earnings will be brought into the UK inheritance tax system.
Is non-dom status being scrapped?
Non-dom status is still set to be scrapped.
But speaking at the World Economic Forum in Davos, Reeves said she would “tweak” the transition period to make it more attractive.
It is unclear what changes will be made though and amendments will be tabled in Parliament.
Dhana Sabanathan, private wealth partner with law firm Michelmores, said: “We haven't seen the amendment Rachel Reeves is referring to yet, but this appears to be a relatively minor tweak to the announced non-dom changes, and likely not enough to entice those leaving the UK to have second thoughts.
"It was hoped that Reeves would lengthen the four- year period individuals can benefit from the new regime and/or introduce a flat rate of tax of new arrivals to make the UK competitive with jurisdictions such as Italy.
“Those types of changes could have prevented some of the exodus of wealthy individuals the UK is experiencing, but the current announcement, whilst welcome, is unlikely to shift the dial on this worrying trend.
There were particular concerns that the non-dom crackdown will hit the prime London sales market so this may at least provide temporary respite.
Dominic Agace, chief executive of estate agency brand Winkworth, said: "The non-dom measure has definitely had an impact on wealthy high net worth individuals wanting to buy houses in central London and a row back on measures is to be welcomed, although on the face of it these don't seem enough.”
It is unclear if the chancellor is still planning to bring foreign earnings into the inheritance tax trap though, which is causing concerns.
Agace added: “The biggest concern of many is where there are no double tax treaties - and to have to have inheritance tax on global assets earned prior to UK residency in unrelated overseas territories. While this remains, it is hard to see reform moving the dial significantly."
Jeremy Savory, chief executive of wealth mobility firm Savory and Partners, said while the UK is right to review the proposed changes, the new measures shared so far will not go far enough to stem the flow of millionaires out of the country.
He said: “The UK has a small window of opportunity to put in place a more competitive and attractive residency scheme for high net worths who are still attracted to the stability, established legal and governance systems and high education standards.
“However, the investment opportunity in the UK, an area that the government is desperate to bolster, is waning and this is a chance for the government to reconsider how it can support this.”
Savory said longer timeframes are needed for wealthy individuals to settle in the UK, adding: “An important first step is allowing for a longer time frame, as four years is not long enough for most people’s plans, as well as higher limit to the relief - which of course can have stipulations over the types of investments for maximum impact to the UK economy - but will enable individuals to make significant decisions.”
