Rule changes will trigger a non-dom gotterdammerung

Inheritance tax for non-doms poses a real risk of capital flight that could drive away jobs and risk public spending commitments, says Leslie MacLeod-Miller

The UK is on the brink of economic self-sabotage. Proposed changes to the non-domicile (non-dom) tax regime could trigger a mass exodus of investors, taking jobs and tax revenue with them. As the government pushes forward with these rushed reforms, it risks downgrading the UK from a global investment hub and undermining its own mission to have the highest growth in the G7.

For decades, the UK’s favourable non-dom tax regime has been a cornerstone of its appeal to international investors. These individuals bring not just capital, but jobs, innovation and growth. Many recognise it is in need of modernisation. However, the government’s proposed changes are poised to dismantle its carefully crafted advantage, driving away investors who have collectively injected billions into the economy, finding refuge in more competitive tax environments such as Italy and Switzerland. In 100 days, the government’s plans threaten to capsize a regime which has taken 100 years to build.

New analysis from Oxford Economics, commissioned by Foreign Investors for Britain, starkly warns that these reforms will backfire. Instead of raising the hoped-for tax revenue, the UK could face a £1bn shortfall by 2029/30. This isn’t just about numbers on a spreadsheet — it’s about the real risk of capital flight that could undermine the UK’s economic engine, drive away jobs and risk key public spending commitments. 

Economic self-sabotage

The proposed changes to inheritance tax (IHT) for non-doms coming to the UK are particularly alarming. A staggering 83 per cent of non-doms surveyed indicated that global IHT on their overseas assets is a major reason they would leave the UK. These are not idle threats; these investors have options and can easily relocate to more welcoming jurisdictions. This is their redline issue.

Beyond the immediate loss of tax revenue, the broader economic impact could be servere. The 72 non-doms surveyed in the Oxford Economics report have each invested an average of £118m into the UK economy. If these investors pull out, the consequences will ripple through industries, from real estate to tech start-ups, leaving a void that will be hard to fill, while losing their contributions to philanthropy, charities or areas such as medical research will suffer.

Foreign Investors for Britain proposes a more balanced approach — introducing a tiered tax regime (TTR) that offers fairness and predictability. By scaling tax contributions based on net wealth and providing exemptions on non-UK assets, the UK can retain its competitive edge while ensuring that high-net-worth individuals contribute their fair share.

The government’s non-dom tax reform is a misguided attempt at generating revenue that will instead drive wealth and opportunity out of the UK. Now is the time for a rethink. By adopting a more nuanced, tiered approach, the UK can safeguard its status as a premier global investment destination and ensure continued prosperity for all.

It’s imperative that policy makers listen to the warnings from investors and economists alike. The UK cannot afford to gamble with its economic future — there is simply too much at stake.

Leslie MacLeod-Miller is chief executive of Foreign Investors for Britain