Increasing numbers of wealthy foreigners say they are leaving the UK in response to the abolition of the “non-dom” regime that allowed them to avoid paying tax on overseas income.
The change — backed by both the Conservative and Labour parties — has contributed to a relative decline in the UK’s attractiveness, according to over a dozen interviews with wealthy foreigners and their advisers. Other deterrents cited include Brexit, fiscal and political instability, and concerns around security.
“Brexit happened and the Conservatives promised to make the UK like Singapore and instead they turned this place into Belarus,” said a billionaire businessman who has lived in London for 15 years and is now moving his tax residency to Abu Dhabi. “Security is now a major issue and another contributing factor to the tax reasons for why people are wanting to leave.”
In March chancellor Jeremy Hunt stole one of the opposition Labour party’s flagship fiscal policies when he announced the abolition of the non-dom regime.
Labour shadow chancellor Rachel Reeves followed with proposals to toughen the planned crackdown, notably reversing a Tory decision to permit non-doms who will lose benefits from next April to shield foreign assets held in an offshore trust from inheritance tax permanently.
Polls have put Sir Keir Starmer’s Labour party on track for victory in the general election on July 4.
“The UK’s inheritance tax of 40 per cent on your global assets is a real problem,” said a European non-dom businessman in his 50s, who is moving his family from London to Switzerland after more than a decade in the UK. “It’s the overall instability that has been the nail in the coffin for me. If there was a more balanced, less punitive inheritance tax I might have considered staying.”
While Starmer has sought to position Labour as the “party of wealth creation”, the non-dom changes mark one of several potential tax increases under a Labour government.
While Labour has committed not to raise income tax, national insurance, corporation tax or VAT, the party insists it has “no plans” to raise capital gains tax or inheritance tax or levy any form of wealth tax, but refuses to rule them out. Rachel Reeves, shadow chancellor, told the Financial Times this week: “We’re not seeking a mandate to increase people’s taxes.”
A party official said “nobody has seen” a supposed Labour memo, reported by the Guardian, which outlined that the party was mulling plans to increase the rate of CGT in line with income tax and cap business and agricultural land inheritance tax relief. Labour officials said the report appeared to be based on research by the Institute for Fiscal Studies and Tax Policy Associates.
Trevor Abrahmsohn, director of Glentree Properties, a London estate agent, said there had been a steady decline in inquiries for £10mn properties, which he attributed to “higher interest rates and anticipated changes to the non-dom regime”. He added: “As more high-end property comes on to the market, I expect there to be fewer buyers and for prices to fall.”
Indian vaccine billionaire Adar Poonawalla last month told the FT that the non-dom change had harmed the UK. “Some people are willing to pay that cost like I am, but most others aren’t,” said Poonawalla, head of the Serum Institute of India. “They can easily move out.”
There were 68,800 individuals claiming non-dom status on their tax returns in 2022, according to the most recent estimates from HM Revenue & Customs, the UK tax agency, but a lag in the data makes it impossible to gauge recent moves.
“There is no hard and fast data on non-dom departures but there’s a real buzz at the moment around people both considering leaving and actually going,” said Fiona Fernie, a partner at tax and accounting firm Blick Rothenberg. “There’s been a definite marker put down by both parties that non-doms are targets and whatever benefits perceived to be given to them is going to be significantly reduced. This is a catalyst for departures.”
One French investor in his 40s said that “any foreigner in the UK who has the option to leave is doing so because of the end of the non-dom regime”. He is moving from London to Milan early next year, lured by a system that was announced by Italy in 2017 that exempts foreign income from Italian tax in exchange for the payment of €100,000 a year. Returning to France was “out of the question”, he added, given the current political situation.
A crackdown on the non-dom regime began eight years ago under then Conservative chancellor George Osborne. He tightened the regime so that from April 2017 foreign residents who had lived in Britain for more than 15 of the past 20 years were deemed domiciled in the UK.
Since then other European jurisdictions — including France, Italy and Portugal — have gone in the opposite direction, launching comparable non-dom or impatriation regimes to attract wealthy families, increasing competition with traditional havens such as Monaco and Switzerland.
Italy, Switzerland, Malta and the Middle East are currently the most popular destinations for those leaving the UK, according to advisers.
While non-doms do not pay tax on their offshore earnings, they are taxed on their UK income. Proponents of the regime argue that non-doms bring skills, jobs and investment to Britain.
The American School in London is concerned about future enrolment as a result of the non-dom abolition, according to two people familiar with the situation. The American School declined to comment.
A French businessman in his 50s who is resident in Switzerland said he had started the process of moving part of his business to the UK but backtracked after the government announced it would abolish the non-dom regime.
“The Conservatives have sent a very strong signal that they don’t want foreigners here any more and Labour won’t do anything to change that. I’m 100 per cent sure I’m not going to come back.”
He added: “Was the non-dom regime a fair system? No it wasn’t. Was it efficient? Yes it was.”
Fears of a tougher tax regime are also causing some UK nationals to look at leaving the country. Henley & Partners, which advises on residence and citizenship, said it had received a three-fold increase in inquiries from UK nationals between 2022 and 2023 and a 25 per cent year-on-year increase in the first half of this year.
“A lot of the inquiries we’re getting at the moment in the London office are based on the fact that Labour will come in and what might happen on the back of that,” says Dominic Volek, group head of private clients at Henley & Partners.