Wealthy foreigners have expressed anger and “dismay” at chancellor Jeremy Hunt’s decision to abolish the colonial era “non-dom” regime that allowed them to avoid paying tax on overseas income.
The system, which dates back more than 200 years, allows people with their permanent home or “domicile” overseas to avoid paying UK tax on their foreign income and gains for up to 15 years provided they do not bring income or capital gains back into the country.
In Wednesday’s Budget, Hunt announced the abolition of the regime, cutting the amount of time that people can benefit from the perks of the status from 15 years to four.
The decision, which will come into force in April 2025, stole one of the opposition Labour party’s flagship fiscal policies and left non-doms and their advisers rushing to work out the implications.
“The phone has been ringing and the inbox has been full,” said Edward Hayes, a director at law firm Burges Salmon. There is “a lot of dismay” from some clients “who feel they came [to the UK] in good faith and the rules are being changed mid-game”.
A particular sore point for non-doms was the government’s decision to axe a common planning method for sheltering foreign income and gains in trusts before they are deemed UK-domiciled.
Mark Davies, a tax adviser to non-doms, said some clients were very annoyed. “I’ve been asked by a number of people to profile other places that might be suitable,” he said.
One European non-dom businessman who has been in London for more than a decade called Hunt’s decision “completely moronic”.
“Nobody expected this from the Tories,” he said. “We’re going to leave London and move to Switzerland.”
“The writing is on the wall. People are going to move away,” he added. “Since Brexit, banks have opened up offices all over Europe so moving away from London is not as taboo as it was 10 years ago. That’s the big miscalculation that Hunt has made.”
The non-dom regime has attracted scrutiny as both the Conservative and Labour parties seek to tap into voter concerns around inequality. Eight years ago, the then Conservative chancellor George Osborne tightened the regime so that from April 2017 foreign residents who had lived in Britain for more than 15 of the past 20 years were deemed domiciled in the UK.
At the same time, other European jurisdictions — including France, Italy and Portugal — have launched comparable non-dom or impatriation regimes to attract wealthy families, increasing competition with traditional havens such as Monaco and Switzerland.
In 2017 Italy announced a system that exempts foreign income from Italian tax in exchange for the payment of €100,000 a year. A former Goldman Sachs executive said many of his former colleagues had moved to Milan to take advantage of the regime.
Charles McDowell, a London-based consultant specialising in high-end residential property, said the UK government should be trying to attract non-doms rather than drive them away. “These people are mobile . . . they want to come to London — we should be making it easier and not harder,” he said.
The Office for Budget Responsibility, the spending watchdog, estimated that Hunt’s measures would generate an extra £2.8bn in tax revenue in 2026-27 but cautioned that the impact of the measures on the decision of non-doms to remain in the UK, or to attract new people, was “very uncertain”.
The OBR’s forecasts were based on an assumption that 10 to 20 per cent of non-doms who would be ineligible for the new regime would leave the UK.
Some pointed out that an exodus of non-doms could have a wider impact because many bring skills, jobs and investment to Britain, generating economic activity and tax income for the exchequer. Many are philanthropists who donate to British universities and institutions.
But others said the changes would not be enough to drive most non-doms away. They “will diminish some of the UK’s allure but it’s not Armageddon”, said Roarie Scarisbrick, a partner at Property Vision, a buying agent. “The tax regime is nice to have but not the predominant draw.”
A banking executive at a large European lender said most non-doms would stay in the UK, even if they were angry about the changes. “There will be a lot of noise . . . but very few actual relocations,” the banker predicted.
A veteran London-based hedge fund manager agreed, saying: “The non-doms I know have been here for ages and will be happy to pay more tax to enjoy their lifestyle. There is a fantastic school system and culture here in the UK.”
Marco Cerrato, a partner at Maisto e Associati, a law firm operating in Italy and the UK, said the change would boost the allure of Italy, which he said allows longer-term planning than the new British system.
He added that Hunt’s proposals were still “quite aggressive” at seeking to attract new arrivals, and said it would be possible to “achieve a big tax advantage” from them.
Other advisers pointed to transitional rules that will allow non-doms to pay just 12 per cent tax on overseas wealth realised before April 2025 as long as they repatriate these funds by April 2027. Top earners bringing this money into the UK would currently be taxed at 45 per cent on income or 28 per cent on capital gains.
This was potentially attractive to some wealthy people who have accumulated millions, or tens of millions of pounds of wealth overseas that they would have liked to bring to the UK before now if it were not for the large tax bill this would create, said Hayes.
McDowell, the property consultant, said: “There’s an enduring love for London . . . but we must be careful we don’t push people off the edge.”
Additional reporting by Costas Mourselas