Scrapping non-dom regime branded ‘monumentally stupid’ by tax advisors

Several leading tax and wealth advisors have told City AM that scrapping the non-dom regime without a suitable replacement is a “monumentally stupid decision” that has already prompted some non-doms to leave.

One of the key measures introduced in Wednesday’s budget was abolishing the non-dom status, a regime that allowed certain tax breaks for people whose permanent residence was overseas.

It had been part of the Labour Party manifesto before the election but was the subject of an intense lobbying campaign in the run-up to the Budget, with wealth advisors and the non-dom’s industry body warning it would result in a “tidal wave” of departures.

But despite the frenzied campaigning, the policy announced by the Chancellor will see the complete overhaul of the regime in April next year, replacing it with a new regime based on residence, which will incentivise short-term visits through tax breaks, but not longer stays; a move one senior advisor said had already prompted several of his clients to leave.

“One of [my clients] has already texted me to say, ‘You need to drive me to the airport,’ James Quarmby, founding partner at City law firm Stephenson Harwood, told City AM, “and another one already had a plan in place were Reeves to go ahead with the worst-case scenario and got on a plane back to South Africa that day, and he’s worth £200m.”

Quarmby added that “dozens and dozens” more of his clients would now leave as a result of the changes being confirmed, which “replicated across the City [would mean] thousands”.

Meanwhile David Lesperance, a founding partner at Lesperance and Associates, branded the Budget a “Nightmare from Number 11 Downing Street” for his clients, adding he’d spoken to five clients about how to respond within 24 hours of Rachel Reeves’ speech.

Wealthy flee Labour’s tax raid

The advisors’ comments come despite the government making some concessions to the plans outlined in the party’s manifesto.

The Chancellor extended a policy known as a ‘temporary repatriation facility’ – a way for people to come and work in the UK without paying tax on their foreign income or assets – by a year.

Iain Tait, head of the private investment office at London and Capital, called the extension “welcome news”, but added that compromise notwithstanding, the reforms as a whole would have “significant impact”.

Advisors highlighted reforms regarding non-doms’ liability to inheritance tax on their foreign assets as the most contentious change outlined on Wednesday.

Under previous changes announced – but not seen through – by the Conservative Party government, the non-dom regime would also have been discarded.

However, non-doms would have been able to keep their international assets in a trust that would have been exempt from UK inheritance tax.

The Chancellor had previously hinted that this carve out might remain in the government’s plans, after reports emerged that the exodus of wealthy foreigners would be so extreme that the her more far-reaching would not raise any money.

But that concession did not materialise in the Budget, a decision which Quarmby branded “monumentally stupid”.

“The dealbreaker has always been the inheritance tax position,” he said. “It’s the provision that is causing all of the grief, and now the OBR [Office for Budget Responsibility] is modelling that 25 per cent of non-doms will leave. [That’s] going to be an absolute disaster.”

Tiered Tax Regime

Much of the campaigning in the run-up to the Budget had focused on the planned reforms to inheritance tax, which even prompted the establishment of the first-ever non-dom lobby group, Foreign Investors for Britain (FIFB).

The group had previously released research finding that if Reeves’ plans were introduced unchanged, they would cost the exchequer £900m.

It then proposed an alternative regime, a Tiered Tax Regime, which it claimed early modelling had shown would stop departures and generate revenues “in the low billions.“

Reacting to the government’s decision, Leslie Macleod-Miller, the body’s chief executive, said: “We’re hearing alarming reports from investors and entrepreneurs in the non-dom community planning to leave the UK. This exodus will have severe consequences for our economy. 

“The government has played politics with foreign investors and the economic result will be a long-drawn out Liz Truss Budget – we had hoped for a Budget more in the spirit of Diwali than Halloween.”

The Chancellor has long argued that those who choose to live in the UK for more than a brief period should pay their taxes as a permanent resident would.

In her speech on Wednesday, she said: “I have always said that if you make Britain your home, you should pay your tax here. So today, I can confirm, we will abolish the non-dom tax regime and remove the outdated concept of domicile from the tax system from April 2025.”