Labour's crackdown on the 200-year-old status of non-doms – and closure of a loophole that allowed them to avoid UK inheritance tax via offshore trusts – has caused an outcry among the wealthy.
This has snowballed into an alleged "exodus" of rich people from Britain, and Rachel Reeves is said to be considering reversing her controversial decision to impose 40% inheritance tax on the global assets of non-doms, government officials told the Financial Times.
The measure, which came into force in April, is the aspect of abolishing the non-dom regime that is "causing most heartburn", said one official. Another confirmed that the chancellor will change the rules if it is "found to be good for Britain's international competitiveness", said the paper.
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Reeves' initial decision to raise taxes on non-doms was a "calculated gamble", said Eir Nolsøe and Madeleine Ross in The Telegraph. And it will be a while before we know whether that gamble has paid off. "The only way to know about what non-doms are doing is to look at the tax data," said Arun Advani, an economics professor at the University of Warwick.
The HMRC data for the tax year that ended in April won't be available until well after the filing deadline of January 2026. "Late filing is particularly prevalent at the top of the income distribution," said Advani, because "the £100 late fee is not really that costly".
Data from global mobility specialist Henley & Partners suggests Britain experienced a "record exodus" last year, losing almost 11,000 millionaires, said The Telegraph, but some of this data is "based on flimsy metrics". Bloomberg also analysed five million company filings, and found that about 4,400 company directors disclosed "an overseas move in about the last year". That number "likely includes non-doms and British nationals moving in protest over recent tax changes", said The Telegraph.
There are "financial crisis-level discounts" on homes in London's poshest areas like Mayfair and Knightsbridge, according to Savills estate agents. If even 25% of the UK's non-doms leave, the Treasury would "make no extra money from scrapping the tax status", according to analysis by the Centre for Economics and Business Research.
If the FT's report is true, Reeves "may finally have seen sense", said The Spectator's economics editor, Michael Simmons. The changes to inheritance tax rules meant non-doms would have had to pay tax on their global assets "even on wealth earned before they came to the UK". That this would have applied retroactively, for up to 10 years, is "what really sent non-doms over the edge".
But it's a challenge for Reeves to make these "180" changes without it looking like a "screeching U-turn". And there is "constant speculation" on whether she will have to hike taxes in October. If that happens, it would be "politically very difficult to implement what would be seen as a tax cut for the uber-wealthy, even if it's clearly economically the right thing to do".
Plus there is a "looming rebellion" over Reeves' £5 billion cuts to sickness and disability benefits, said Stephen Bush in the FT. Taken together, the "double whammy" of a U-turn on non-doms and cuts to benefits "provokes a lot of political anxiety".
That said, it could be "the catalyst the market needs", said MoneyWeek. The report in the FT was "welcomed" by London's property advisers and estate agents. The move won't reverse the alleged exodus, said Becky Fatemi, executive partner at Sotheby's International Realty UK. "But it could stop the bleeding."
"It's a small step but a significant one pointing towards the bigger rethink that's urgently needed: the UK's broader tax stance on international wealth."
What next?
Some believe Reeves will "not give ground on the issue", said the FT. "We won't do it, the politics are dreadful," one Labour adviser told the paper.
A Treasury spokesperson said the government would "continue to work with stakeholders to ensure the new regime is internationally competitive" and continue to "focus on attracting the best talent and investment to the UK".
But even if this U-turn doesn't happen, "the fact that Reeves has woken up to the problem is a vindication" for all those who have "raised the alarm on the wealthy fleeing the country" – and were "pilloried" for it, said Simmons in The Spectator.
Reeves was warned before the election that this policy risked costing the Treasury more than it would bring in. "Now it looks like there could be a political cost as well."
