Reeves tweaks non–dom tax as fears of ultra-rich exodus grow

Rachel Reeves told an audience at Davos last month she had been “listening to the concerns” of the non-dom community.

So what? Translation: “I don’t want them to leave.”

A chorus of wealthy voices has been warning Reeves for months that abolishing the “non-domiciled” tax regime, which allows qualifying individuals to avoid UK taxes on their foreign income for up to 15 years, would precipitate a mass exodus of millionaires. Whether it has or not is the subject of fraught debate.

Millionaire migrants. It’s been widely reported that a net 10,800 millionaires left the UK in 2024, due partly to changes in the tax system. But this is not a figure from HMRC. It’s a projection from New World Wealth, a South African private intelligence firm, using data from Henley and Partners, a global advisor for residence and citizenship.

• NWW compiles data from “public sources… including LinkedIn and other business portals”.
• A spokesperson for the firm said the 10,800 figure was a “modelled” number based on research into 250 individuals’ locations online and that “we don’t actually know if they’ve moved their tax domicile or not”.

Concluding that a millionaire has left Britain every 45 minutes is a stretch.

Even so… The chancellor now says she will bring forward legislation this year to help non-doms repatriate their funds to the UK at discounted tax rates.

Non-dom nomads. Triangulating the movements of the ultra-rich is an inexact science. For example, the Sunday Times rich list says there are 165 billionaires in Britain, while Forbes says there are 20 (and only 3 in Monaco). Precise numbers from HMRC measuring the non-dom departures may arrive by the end of 2025. Until then, the chancellor must rely on estimates and…

…vibes. Which aren’t good. A source who works for a multi-family office advising high net-worth individuals said that, post-budget

• 25 per cent of their clients are actively leaving;
• 25 per cent are content to stay put; and
• 50 per cent are “deeply investigating their options”.

“What's happened in the nine years since Brexit is that other countries have started to put in place the infrastructure to be able to have these super wealthy people arrive and have a good lifestyle,” this source says.

Where? Henley and Partners says 2024 was a record-breaking year for UK nationals applying for alternative citizenship and residency, up 57 per cent on 2023. The top three investment migration programmes applied for were:

• Antigua & Barbuda for citizenship;
• Portugal for residence; and
• Malta for citizenship.

Tax regimes in the UAE, Italy and Switzerland are also attracting interest.

What’s changing? From April, non-doms will pay inheritance tax on their non-UK assets if they’ve been UK resident for at least 10 of the last 20 tax years. Overseas trusts will also be taxed, unless the person claims four years tax-free under the new Foreign Income and Gains regime.

“Anybody who's been a non-dom here for the last 20 years is immediately caught in the trap and they're absolutely not going to agree to pay inheritance tax,” says a billionaire who used to live in the UK. “People are saying, ‘I can afford to live in the UK, but I can’t afford to die there any more.’”

Time for a rethink? Earlier this year, Reeves heard – and rejected – a proposal from international business figures for a system that would scrap the new system for a flat tax of £250,000 levied every year on overseas income and gains.

Assuming there are 10,000 wealthy non-doms in the UK, the tax would raise £12.5 billion. A similar scheme exists in Italy, and is regarded as one of the reasons Milan is becoming a haven for the super-rich.

But Arun Advani, a tax expert at the University of Warwick, says the proposal isn't realistic: “Most non-doms are here to work, bringing their skills and paying substantial tax. They don’t have anywhere near enough wealth to benefit from a flat tax that starts at £250,000.”

Why it matters. The OBR says reform of the non-dom regime

• will raise £33.8 billion over the next five years;
• will apply to non-doms who are already highly transient, with 90 per cent having left the UK after seven years; and
• assumes that between 10 per cent and 20 per cent of current non-doms ineligible for the new regime leave the UK

What’s more… Research on previous non-dom changes in 2017 found that exits were low and that tax is not generally a first-order consideration in location decisions. Access to networks, elite schools, cultural activities and corporate interests are all frequently cited as reasons the UK remains “sticky”.

Reeves’ reforms might have been a final straw – but reaching that conclusion requires better data. In the words of one non-dom who investigated an exit, “if this is the price of having my favourite pub on the corner, I’ll pay it.”