Non-dom changes: will Rachel Reeves soften her approach?
Government officials have been briefing the press that the UK chancellor, Rachel Reeves, is prepared to revisit the detail of expected radical reforms to the taxation of non-UK domiciliaries. This news is likely to be welcomed by current UK taxpayers and those planning to relocate to the UK, as the uncertainty surrounding these changes has complicated personal financial planning for the past eight months.
However, recent media reports suggest the Office for Budget Responsibility (OBR) now believes the reforms could result in a net loss for the Treasury. This isn’t entirely surprising, given that non-domiciled individuals, by their very nature, often have global connections and can easily relocate if the UK becomes less appealing.
Chancellor Rachel Reeves is now faced with three options:
- Push forward with the original plan: Given her public comments about the UK’s financial state and Labour’s commitment to balancing the books, moving ahead despite the OBR’s negative outlook could lead to criticism about her decision-making.
- Drop the changes: This would be politically challenging, as Reeves has consistently supported the general principles of the reforms, and Labour has already allocated the anticipated revenue. Additionally, some parts of the reforms, such as changing inheritance tax from a domicile-based to a residence-based system, are seen as sensible.
- Revise the proposals: The most likely course of action is to adjust the reforms based on OBR estimates, aiming to balance fairness with maintaining the UK’s competitive edge.
Other countries, such as Italy, Greece, Spain, and Switzerland, have created tailored tax regimes to attract UHNW individuals by offering flat tax rates or special exemptions.
For the UK to remain competitive in attracting these individuals—and the tax revenues they bring—the Chancellor may need to consider similar strategies. The design of the new tax regime will play a crucial role in determining whether the UK remains a desirable destination for global wealth and investment.