Chancellor Rachel Reeves has announced amendments to the contentious non-dom tax reforms proposed in the Autumn Budget, signaling a more pragmatic approach to address concerns about a growing exodus of wealthy individuals from the UK. Speaking at the World Economic Forum in Davos, Reeves detailed changes to the Temporary Repatriation Facility (TRF) in the Finance Bill 2024-25, aimed at encouraging non-doms to repatriate foreign income and invest in the UK while maintaining fiscal fairness.
The new tax regime, set to replace the long-standing non-dom system in April 2025, introduces a residence-based framework for inheritance tax (IHT) and a four-year foreign income and gains (FIG) regime for new arrivals who have not been UK tax-resident in the preceding ten years. The TRF allows non-doms to remit foreign income to the UK at reduced tax rates—starting at 12% in 2025/26 and rising to 15% by 2027/28—while simplifying mixed-fund rules and offering preferential treatment for certain trust distributions. Reeves emphasized that the amendments would expand the TRF’s scope, easing conditions for specific assets to benefit from concessionary rates and addressing concerns raised by stakeholders.
A key element of the amendments is Reeves’ reassurance that existing international tax treaties will prevent double IHT charges. This commitment is particularly relevant for non-doms from countries like India, where concerns had arisen about potential double taxation on inheritance. While the government maintains that these changes align with its broader goal of modernizing the tax system, it has faced significant pushback from non-doms, wealth advisors, and economists who argue the reforms could deter high-net-worth individuals from investing in the UK.
The revisions come in the wake of alarming data from New World Wealth, which revealed a record net loss of 10,800 millionaires from the UK in 2024, more than double the previous year’s figure. Analysts attribute this exodus to increased taxes on non-doms, stricter inheritance tax rules, and the diminishing global prominence of the UK as a financial hub. Critics warn that this trend could severely impact tax revenues, with estimates suggesting that the lost contributions equate to the income tax revenue of over half a million average taxpayers.
One of the most contentious aspects of the reforms is the treatment of existing trusts. Under the new rules, trusts previously protected from UK taxes will now be fully taxable, even if their assets have already been taxed abroad. This change has sparked widespread criticism, with high-profile figures like billionaire Magda Wierzycka expressing dissatisfaction. Wierzycka, South Africa’s richest woman, stated that unless existing trusts are grandfathered into the new regime, she and her family will relocate back to South Africa. She questioned the logic of bringing additional wealth into the UK only to face higher tax burdens, echoing the concerns of many non-doms.
Wealth advisors and tax experts argue that while the expanded TRF provides some relief, it fails to address deeper issues driving the departure of wealthy individuals. Stephen Kenny of PKF Littlejohn described the amendments as “too little, too late,” emphasizing the erosion of trust in the UK’s tax stability. Mauro De Santis Bo of GSB Wealth noted that while the TRF adjustments might benefit non-doms already inclined to stay, they do little to persuade those who have already decided to leave. Advisors highlight that the short-term nature of the reforms undermines the UK’s ability to attract long-term investors and entrepreneurs.
A major concern remains the proposed 10-year IHT “tail,” which extends tax liabilities on worldwide assets for non-doms who leave the UK. This measure, combined with the broader changes to inheritance tax, has been a significant deterrent for wealthy foreigners. Rachel De Souza of RSM UK suggested that reversing these IHT provisions could be more effective in retaining non-doms than the current TRF enhancements. Philip Munro of Withers emphasized that many non-doms are unwilling to accept prolonged exposure to UK taxation, leading them to relocate to more favorable jurisdictions like Italy, Switzerland, or the UAE.
The broader impact of these reforms on the UK’s global competitiveness is another point of concern. Charlie Sosna of Mishcon de Reya noted a slowdown in relocations to the UK, with potential investors questioning whether the government is committed to creating a stable and competitive tax environment. He argued that the reforms encourage transient stays rather than fostering lasting economic contributions, a sentiment echoed by Carol Katz of Mishcon de Reya, who pointed out that many wealthy individuals are already planning their exit strategies.
The erosion of trust among the non-dom community underscores the challenges facing the UK government as it seeks to balance fiscal needs with a competitive, stable tax regime. Marc Acheson of Utmost Wealth Solutions emphasized that the government’s approach risks deterring entrepreneurs and investors who value predictability in tax policy. Critics argue that the reforms, even with the softened measures, fall short of reversing the damage already done, with many non-doms perceiving the changes as insufficient to justify remaining in the UK.
The Finance Bill’s upcoming review presents one of the final opportunities for significant amendments to the reforms. As policymakers deliberate, the broader challenge remains to reconcile fairness in taxation with maintaining the UK’s attractiveness as a destination for global wealth. Without further concessions, experts warn that the softened measures may be seen as a missed opportunity to retain high-net-worth individuals and secure their contributions to the UK economy. In a global landscape where rival jurisdictions offer more favorable tax environments, the UK must act decisively to rebuild trust and competitiveness.
Contact us for more information.
Published on February 10, 2025