Wealthy Foreigners Could Leave UK Over Labour`s Non-Dom Tax Reforms

The Treasury is reassessing parts of Labour’s proposal to overhaul the non-domicile (non-dom) tax status, amid concerns that the reforms may generate less revenue than anticipated. The planned changes were intended to boost funding for public services such as the NHS. However, there are growing fears that wealthy foreign residents might leave the UK, reducing the expected income. A “non-dom” refers to a UK resident whose permanent home, or domicile, for tax purposes is outside the UK. This allows them to avoid paying UK tax on foreign income unless they bring it into the country.

A Treasury spokesperson emphasized that the current discussions are speculative and not yet official government policy. "The independent Office for Budget Responsibility (OBR) will certify the costings of all measures announced at the Budget in the usual way," the spokesperson added. Back in March 2024, then-Conservative chancellor Jeremy Hunt announced that the non-dom tax regime would be phased out, with concessions designed to prevent wealthy foreign nationals from fleeing the country. Although no specific policy has been presented to the OBR for the upcoming Budget, Treasury officials are concerned that scrapping two key concessions made by the previous government might fail to raise the expected £1bn. The funds were earmarked for hospital and dental appointments, as well as school breakfast programs.

Half of the expected income from the wider abolition plan was already forecast to be lost due to changes in behavior among non-doms. Nimesh Shah, CEO of tax advisory firm Blick Rothenberg, mentioned that some non-doms had already left the UK following Hunt's Budget announcement. “A larger number of people are planning to leave over the next 12 to 18 months,” Shah explained, noting that practical considerations such as schooling, housing, and business ties make emigration a lengthy process. Meanwhile, former Conservative chancellor Nadhim Zahawi claimed that in July alone, 5,000 British nationals applied for residency in low-tax regions like Monaco. The OBR had previously warned that revenue from non-doms was "highly uncertain" due to the flexibility they have in opting in and out of the system year-by-year. A minor shift in assumptions about emigration could significantly reduce the income generated by tighter non-dom rules. While final decisions have yet to be made, the Treasury is reportedly considering softer measures, including gradually applying inheritance tax to trusts and offering a discount on foreign income tax for the next year. The Treasury remains firm on scrapping the non-dom tax status, stating its commitment to reforming an "outdated" system. A Treasury spokesperson affirmed, “We are committed to addressing unfairness in the tax system to raise revenue and rebuild our public services.” The new tax regime will focus on attracting talent and investment to the UK through an internationally competitive, residence-based system.