On 6th April, the Labour government scrapped the non-domicile tax status in line with plans set out  in the Autumn Budget the previous year, enacting a policy first touted by the previous Conservative government.

‘Non-dom’ status previously allowed UK residents to register outside the UK for tax purposes, meaning they only paid UK taxes on money earned in the country. This gave HNWIs a legal way to save money on their tax bill by registering as a permanent resident of a lower-tax country. With the abolishment of this status, those residing in the UK will now have to pay UK tax on all earnings.

The non-domicile system has been replaced with a new regime providing 100% relief on foreign income and gains for new arrivals to the UK during the first four years of tax residence, provided they have not been a tax resident here in any of the 10 consecutive years prior to arrival.

However, not long after the implementation of the rules, rumours have been swirling of a potential rolling back of certain areas, including inheritance tax, which moved from being based on domicile to long-term residence on 6th April. Chancellor Rachel Reeves is said to be considering softening the measures amid fears of an exodus of wealthy individuals from the UK.

“We’re seeing a meaningful uptick in UK-based individuals and businesses exploring relocation, not out of panic, but as part of long-term strategic planning,” said Pali Banwait, founder of Strive Consultants.

“The current review of non-dom inheritance tax policy suggests there’s growing recognition that competitiveness matters.

“The non-dom reforms were pitched as a matter of fairness, but the fallout is about competitiveness. Reeves’s review suggests a recognition that global talent and capital are mobile, and policy needs to reflect that.”

Members of the specialist finance industry are also hopeful there will be changes to the policy, such as Jonathan Samuels, CEO at Octane Capital, who like Pali, saw HNW individuals leaving the UK in search of more sympathetic tax regimes and visa schemes.

Jonathan commented: “Another impact is the revenue trade-off that the government is having to accept.

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“While it may be good for the public to see you increasing tax fairness, and while you might see a short-term bump in tax receipts going to HMRC, in the long-term, it’s likely to reduce the nation’s tax income as more and more HNWIs take their money elsewhere. How will the government make up for this lost income?

“As for the specialist finance market, there has been increased activity around restructuring trusts, tax-efficient investments, and offshore setups, while a number of UK-based wealth firms will no doubt have lost clients, many of whom have relocated to more ‘accommodating’ corners of the world.”

According to the ‘Henley Private Wealth Migration Dashboard for 2024’, 9,500 millionaires were projected to have left the UK (with the Adam Smith Institute putting the final number to 10,800), the second highest exodus after China, and a significant increase on the 4,200 who left the UK in 2023.

Another industry professional calling for the softening of the current tax regime is Chris Gardner, CEO at Atelier. He believes that it’s more important than ever to protect the UK’s global competitiveness, making a reversal of the tax ruling very welcome for him.

“The non-dom regime has long helped position the UK as a global hub for talent and capital. Abrupt changes created uncertainty, prompting capital flight and weakening the UK’s appeal to international investors.

“By rolling back this policy, the government would be signalling that Britain is open for business and globally minded.”

Jonathan also believed the softening of some rules, including on inheritance tax and extending transitional periods, could convince some HNWIs to stay.

On the other hand, he still saw positives in the new tax regime, such as a greater perception of justice and fairness among the UK public, an increased sense of tax transparency and wealth disclosure and, most importantly, longer-term benefits.

“If the government can manage to pair the non-dom changes with increased encouragement for UK-based wealth creation — economic growth delivered through the creation of strong new UK businesses in industries such as tech and green energy —  it will mean that the economy is less reliant on passive overseas wealth, instead benefitting from a proactive, vibrant ecosystem of predictive investment.”