The doom loop for the wealthy in the UK

We have been proposing reforms to the UK’s non-dom regime for some time, and so this week’s Budget Day announcement by the Chancellor of the Exchequer of a simpler regime should have been welcome news. 

In the event, it makes for attractive rhetoric and prevents the opposition Labour Party from scoring points with one of its flagship plans, but is, in fact, a missed opportunity to make the UK a genuinely attractive place for international wealth creators.

We are in danger of ending up with a halfway house which spurs existing non-doms to leave the UK whilst also deterring high-net-worth people from outside the UK from moving here

By failing to propose a robust approach which really streamlines the rules and makes the UK system more competitive with other countries, we are in danger of ending up with a halfway house which spurs existing non-doms to leave the UK whilst also deterring high-net-worth people from outside the UK from moving here. We hoped to see a flat annual fee for non-doms, which generates tax revenues and gives non-doms certainty on the costs they must pay, plus a more manageable time limit for non-dom status of around 15 years. Four years does not offer internationally mobile people much of an incentive to relocate to the UK.

With the new rules proposed to take effect from April 2025, and the next general election almost certain to deliver a win for the Labour party, the real question is whether these rules will actually take effect. This will no doubt depend on Labour’s political and fiscal calculations of how best to respond to – and potentially to build on – the Tories’ policy.

Perhaps more importantly, the proposed changes to the basis on which inheritance tax is levied have the potential to be very far-reaching and represent a dramatic departure from the current regime. With a 10-year exemption period for new arrivals and a 10-year ‘tail-provision’ for those who leave the UK and become non-residents, this will no doubt cause many long-term UK residents to reassess whether living in the UK remains practical.

All those affected by these changes will be looking closely at their options and the potential impact of the new rules. It’s likely that, for many, relocating to a more generous jurisdiction will be the answer.

Christopher Groves is co-head of the UK private client team at Withers