A growing number of wealthy individuals are contemplating their departure from the UK in light of potential changes to the country’s long standing non-dom tax regime. Popular destinations like Monaco, Switzerland, and Dubai are positioning themselves to attract these affluent residents ahead of the proposed reforms.
A recent report from Oxford Economics reveals that nearly two-thirds (63%) of wealthy investors intend to leave the UK within the next two years if Labour’s government moves forward with abolishing the non-dom tax status. Additionally, 67% of respondents admitted they wouldn’t have chosen the UK as their base had these reforms already been in place.
The non-dom status, a tax rule that dates back 200 years, allows individuals living in the UK but domiciled elsewhere to avoid paying taxes on income and capital gains from overseas for up to 15 years. By 2023, approximately 74,000 people were benefiting from this status, a rise from 68,900 the year before.
In a move to improve fairness and enhance public finances, Prime Minister Keir Starmer’s government has put forward plans to dismantle the regime. This policy shift, which expands on Labour’s previous manifesto pledge, builds on earlier Conservative efforts to gradually phase out the system.
Finance Minister Rachel Reeves has argued that scrapping non-dom status could generate around GBP 2.6 billion over the term of the next government. However, research conducted by Oxford Economics, in partnership with Foreign Investors for Britain, challenges this outlook. It suggests the changes could cost the government GBP 1 billion by 2029/30.
The proposed reforms would eliminate the domicile concept in favour of a residency-based system. Additionally, the period in which overseas earnings remain untaxed would be reduced from 15 years to just 4. Individuals would also be liable for inheritance tax after 10 years of residency and could be taxed for a decade after leaving the country. Assets held in trust would no longer be shielded from inheritance tax.
The Oxford Economics study highlights that 98% of surveyed non-doms, many of whom have collectively invested significant sums into the UK economy, would expedite their departure should these changes come into effect. Inheritance tax on global assets was cited as the primary concern for 83% of respondents, while 65% mentioned the impact on income and capital gains tax.
A GLOBAL RACE FOR WEALTHY RESIDENTS
With the UK’s tax landscape potentially becoming less attractive, other nations are stepping up efforts to lure high-net-worth individuals. Switzerland, Monaco, Italy, Greece, and Dubai are among the countries making changes to entice wealthy investors, according to industry experts.
A report from Henley & Partners projects that the UK will experience a net loss of 9,500 high-net-worth individuals in 2024, more than double the figure from the previous year.
Other countries, such as Italy and Greece, are offering tax regimes that allow wealthy investors to sidestep global taxation for a flat annual fee. Italy, for instance, recently raised its fee for new arrivals to EUR 200,000, though it remains a competitive option for the ultra-wealthy.
IMPACT ON PRIME REAL ESTATE
The uncertainty surrounding Labour’s proposed reforms is already having a ripple effect on the UK’s luxury property market. James Myers, Director at London-based real estate agency Oliver James, observed that many clients are now reducing asking prices to secure quicker sales and that some of his wealthiest clients have already established new bases in Monaco, Dubai, and, more recently, Italy.
Data from Knight Frank indicates a 22% decline in transactions in London’s super-prime property market—homes valued at GBP 10 million or more—over the past year. Sales of properties worth over GBP 30 million have seen the steepest drop, with just 10 transactions compared to 38 in the previous year.
Original article reference: CNBC.
