Chancellor Rachel Reeves softens plans to abolish non-dom status, aiming to calm fears of an exodus of wealthy residents

Rachel Reeves, Chancellor of the Exchequer, has unveiled changes to her controversial non-dom tax reforms, addressing concerns that the original plans could drive wealthy individuals away from the UK. Speaking at the World Economic Forum in Davos, Reeves revealed amendments to a key piece of upcoming legislation, allowing a more gradual phase-out of non-dom tax privileges. The changes are designed to make the transition smoother for non-doms, offering more generous terms for those wishing to repatriate their wealth to the UK.

Non-dom status allows individuals who live in the UK to avoid paying tax on income earned abroad, as long as their permanent home for tax purposes remains outside the country. Labour’s pledge to scrap this status in its election manifesto aimed to reduce tax evasion and raise funds for public services, but it has faced criticism for potentially prompting a mass departure of the wealthy.

The controversy has been stoked by a report from global wealth consultancy New World Wealth, which claimed that over 10,000 millionaires left the UK in 2024, a 157% increase compared to the previous year. Factors such as rising taxes on non-doms and the growing global influence of the US and Asia in tech and finance have been cited as reasons for the exodus.

Reeves, acknowledging the concerns of the non-dom community, said during a Wall Street Journal event, “We have been listening to the concerns that have been raised,” signalling that her government is responsive to these anxieties. The revised plans include adjustments to the Temporary Repatriation Facility, a three-year initiative that enables non-doms to return their funds to the UK at a discounted tax rate, an attractive proposition for those considering leaving.

Downing Street clarified that these amendments would not alter the core of the government’s stance on the non-dom tax regime. The new approach, officials said, would tackle unfairness in the tax system, ensure long-term residents pay their dues, and still attract the best talent and investment to the UK. Despite the changes, the £33.8 billion expected to be raised over the next five years remains intact, according to the Treasury’s independent forecasters.

However, the announcement has not been universally well-received. Nigel Green, CEO of the financial advisory firm deVere Group, dismissed the proposed changes as insufficient. He warned that the lack of clarity in the adjustments would fail to reassure investors or wealthy individuals, potentially compounding the damage already done by the initial reforms.

The opposition has also been quick to react. Conservative shadow chancellor Mel Stride accused the Labour government of failing to meet its promises, saying that the UK’s attractiveness as a financial hub had already diminished, resulting in a loss of potential tax revenue. “Labour’s Budget is falling apart in front of our eyes,” Stride said.

Meanwhile, the Scottish National Party (SNP) criticised the government for prioritising the interests of the rich. Dave Doogan, the SNP’s economy spokesman, slammed Reeves for being “deaf” to the struggles of ordinary people facing the cost-of-living crisis, while seemingly bending over backwards for millionaires.

Reeves’ decision to announce the changes in Davos is seen as part of a broader effort to demonstrate the government’s openness to policy adjustments aimed at fostering economic growth. Alongside the non-dom revisions, she also highlighted plans to overhaul the UK’s visa system to attract top talent in artificial intelligence and medicine—sectors where the UK aims to compete with the US and EU.

These moves suggest that Labour is keen to balance its fiscal policies with an eye on economic competitiveness, as it grapples with growing discontent both from wealthy elites and ordinary voters concerned about the widening gap between them.

THE SPECTATOR

Chancellor Rachel Reeves is facing criticism and potential policy reversals after her recent clampdown on non-doms, introduced in the 2024 Budget. While attending the World Economic Forum in Davos, Reeves acknowledged concerns from the non-dom community, admitting that the measures might need to be tweaked. The new rules, which aimed to restrict non-doms’ tax benefits, caused significant backlash, particularly from wealthy foreigners. Reeves indicated that changes could allow non-doms to bring money into the UK without facing immediate, heavy tax bills from HMRC. Additionally, adjustments may address double-taxation concerns, especially regarding inheritances. This acknowledgment of mistakes by the Chancellor suggests the government’s economic policies may need further refining. While learning from her errors, the adjustments could prove expensive for the wider public, as the government navigates balancing economic growth with public backlash from influential sectors.

THE TELEGRAPH

An exodus of 10,800 millionaires from the UK in 2024 has been equated to losing 529,200 average taxpayers, according to research by the Adam Smith Institute. This mass departure follows Labour’s tax hikes under Chancellor Rachel Reeves, including a crackdown on non-doms and private schools. Each millionaire would have paid £393,957 in income tax annually, significantly affecting the Exchequer. The upcoming changes to the non-dom regime, alongside a 20% VAT on private school fees, have sparked concerns of further economic strain. Critics, including Andrew Griffith, argue that Reeves’s tax policies risk damaging the economy. Meanwhile, a poll found that most small and medium-sized businesses are pessimistic about the UK’s economic future, with many attributing the decline in confidence to Reeves’s tax policies. Despite this, the Treasury defends the reforms, expecting them to raise £33.8 billion to fund public services and investment projects.