Rachel Reeves is considering making changes to her proposed tax of non-doms as evidence mounts that the policy is forcing an exodus of the wealthy. It would be the latest Labour U-turn if the Chancellor was to reverse her position to charge 40% inheritance tax on people’s global assets.
The Chancellor got rid of non-dom status in April which allowed wealthy individuals with connections abroad to avoid paying full UK tax on their overseas earnings. At the time, she said that “those that make the UK their home should pay their taxes here,” despite warnings from economists that it would hamper the flow of wealth into the country. However, Ms Reeves is now considering softening the changes which forced UK residents to pay more tax, even if assets were placed in trusts.
One senior financier who is in frequent contact with Reeves told the Financial Times that the government was trying to find a way of “backtracking without backtracking” on the non-dom changes — with a particular focus on the inheritance tax issue.
A second senior City figure said that “there will most likely be some tweaks to inheritance tax to stop the non-dom exodus”.
Several prominent billionaires and multi-millionaires are understood to be considering leaving the country following the rule change, including the steel tycoon Lakshmi Mittal.
According to company filings, more than 4,400 directors of companies have left the country in the past year, with a significant spike in the past few months.
Departures in April were 75% higher than in the same month last year.
Sectors including finance, insurance and property were amongst the most affected by the departures, sectors known to be popular amongst non-doms.
Anthony Whatling, at Alvarez & Marsal, who advises the wealthy on how to structure their assets, said: “The inheritance tax change is perceived by many as the most contentious aspect of the non-dom reforms – complex and globally out of step.
“If the Government wants to keep wealth – and the business that follows it – in the UK, this is the lever it needs to pull.”
Whilst the non-dom policy was projected to rake in £4.5bn for the treasury by the end of the decade, only £200m was expected to be generated from the changes to inheritance tax, making a proposed U-turn relatively affordable for the government.
A Treasury spokesman said: “The UK remains highly attractive. Our main capital gains tax rate is lower than any other G7 European country and our new residence-based regime is simpler and more attractive than the previous one, whilst it also addresses tax system unfairness so every long-term resident pays their taxes here.
“As the Chancellor set out at the Spring Statement, the Government will continue to work with stakeholders to ensure the new regime is internationally competitive and continues to focus on attracting the best talent and investment to the UK.”
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