Offering Free Access to the Editor’s Digest
Roula Khalaf, Editor of the Financial Times, curates her preferred stories in a weekly newsletter available for free.
UK Chancellor Rachel Reeves is reportedly poised to revise her proposed Budget tax measures on non-domiciled individuals amid concerns from the Treasury that some of the initiatives might not generate the intended revenue, according to sources familiar with the situation.
Reeves initially aimed to generate approximately £1 billion annually by enhancing a proposal from former Tory Chancellor Jeremy Hunt. This proposal intended to eliminate the tax advantage for wealthy foreign residents in the UK who maintain that their permanent home, or domicile, is abroad.
However, government officials mentioned on Thursday that Reeves might adjust the plan before the October 30 Budget if the projected figures were not as expected, though they emphasized that no definitive decisions had been made.
This development follows advisors’ warnings that numerous wealthy foreigners holding non-domicile status were considering leaving the UK.
“We are evaluating the specifics of our proposals,” stated a government official. “We will adopt a pragmatic rather than ideological approach. Our aim is not to proceed regardless of the outcomes, but we will not completely discard the plan either.”
Treasury officials are apprehensive that certain aspects of the planned crackdown on non-doms might not result in additional revenues, as current beneficiaries of the tax perk might migrate to more favorable tax jurisdictions.
Hunt committed to abolishing the non-dom tax regimen in March, with the reform set to start in April 2025, and aimed to garner £2.7 billion in revenues by 2028.
The existing regimen allows individuals residing in Britain who claim their domicile is overseas to pay UK tax solely on their UK income and capital gains. They are not taxed on foreign income or gains unless these funds are brought into the UK.
Labour has promised to rescind concessions made by Hunt in his plan to abolish non-dom status, including protection from UK inheritance tax for foreign gains and income held in trusts. The Conservatives suggested a 50 percent tax discount for non-doms bringing foreign income to the UK in 2025-26.
Labour has assessed that their stricter crackdown on non-doms would generate more than £1 billion in taxes within the first year of implementation.
Reeves is reportedly determined to end non-dom status and exceed Hunt’s proposals, but she continues to review the details, especially concerning inheritance tax.
The Treasury labeled this information as “speculation” and confirmed that the Office for Budget Responsibility (OBR), the UK’s fiscal watchdog, would certify the costs of all measures announced in the Budget.
They added that efforts would be made to eliminate unfairness in the tax system and replace the “outdated non-dom tax regime” with a “new, internationally competitive, residence-based regime.”
Reeves has committed to adhering to a self-imposed fiscal rule that the public debt as a percentage of GDP would be declining within five years, thus constraining her by OBR forecasts concerning the impacts of her tax-and-spend policies.
Hunt remarked, “It will be no surprise if Labour’s policy raises no money, because, as always, they fail to comprehend the significance of globally competitive tax rates to our economy.”
Labour’s non-dom policy was part of their election manifesto, intended to raise funds for more NHS hospital and dental appointments and school breakfast clubs.
Shortly after Hunt committed to abolishing non-dom status, the party stated it would end a prevalent tax-planning method used by wealthy foreign residents in Britain, whereby they place foreign gains and income in trusts, shielding the funds from UK inheritance tax indefinitely.
The Conservatives declared that trusts existing in April 2025 would not be liable for inheritance tax. Labour, however, stated that all existing trusts would be subject to tax.
Labour also proposed that individuals be liable for UK inheritance tax after residing in the UK for 10 years and remain liable for 10 years after departure.
Tax experts indicated that any relaxation of these measures would be welcomed by current non-doms and prospective new residents.
Rachel de Souza, a partner at accountancy firm RSM, commented, “If the government moderates its inheritance tax position, it could significantly reduce the inclination to leave the UK.”
Sophie Dworetzsky, a partner at law firm Charles Russell Speechlys, noted that the government’s inheritance tax proposals were unappealing to non-doms.
“The issue is the unwarranted 10-year inheritance tax tail and the fact that existing trusts — which were believed to be protected from inheritance tax — are not,” she stated.
Additional reporting by Sam Fleming
