Rachel Reeves to soften UK non-dom tax reforms

Unlock Editor’s Digest for free

FT Editor Roula Khalaf selects her favorite stories in this weekly newsletter.

Rachel Reeves is ready to make a change to the UK government’s crackdown on non-domiciled residents in a bid to allay concerns over the tax reforms announced in the October Budget.

The chancellor said Thursday at a fringe event at the World Economic Forum in Davos that the government will soon make a change to its own finance bill.

This will allow easier access to the temporary repatriation facility, which allows non-doms to bring foreign income and earnings made before April 2025 into the UK and pay tax at a discount rate of 12 percent in the 2025-26 and 2026-27 taxes. years, rising to 15 per cent in 2027-28 – compared with the top income tax rate of 45 per cent.

The change planned by the government will make it easier for some funds to access physical tax rates. But while the measure may be useful for some non-doms, it is unlikely to move the dial for many.

Reeves told the Wall Street Journal’s Davos event on Thursday that the government had “listened to the concerns that have been raised by the non-dom community,” responding to a question about an increase in the net number of millionaires leaving the United Kingdom in recent months. .

Jonathan Reynolds, business secretary, later confirmed the planned change, first reported by The Times, telling reporters in the Swiss mountain station: “There is a tweak to the finance bill. . . When you change a tax regime, people will want to know, and there will be some uncertainty here, so we have to make the message” .

Reeves announced in the Budget that he was abolishing the non-dom regime, which allows UK tax residents whose permanent home or “domicile” is overseas to avoid paying UK tax on their foreign income or capital gains for 15 years.

It will be replaced from April 6, 2025 by four years residency scheme to offer “internationally competitive arrangements for people coming to the UK on a temporary basis”.

Downing Street said the change would not lead to a fall in tax from replacing the non-dom regime, and the Treasury still expects to raise £33.8bn over the next five years from the reforms.

Non-doms were most concerned about changes to inheritance tax on existing trusts, with the issue often cited as the key factor driving them to leave the country.

Rachel de Souza, tax partner at RSM UK, said that while an increase in the temporary repatriation facility was “a good move”, it was “woefully inadequate” to stop wealthy non-doms leaving the UK.

“The way to stop this exodus would be to keep the IHT exemption for offshore trusts, but also to reverse the proposed changes to agricultural and business property relief which impacts farmers and entrepreneurs.”

Robert Brodrick, a partner at the law firm Payne Hicks Beach, said: “It is reassuring to see that they are finally responding to the concerns of the many people who are affected by this, but I do not think that this will be enough to stop them. the tide… It’s useful, but the inheritance tax is the biggest nail in the coffin.

The chancellor also said on Thursday that she wanted to allay the concerns of countries like India that the rule changes would not affect double taxation agreements: “That is not the case: we will not change these double taxation agreements”.

A Treasury figure said: “We are always interested in hearing ideas to make our tax regime more attractive to talented entrepreneurs and business leaders from around the world to help create jobs and wealth in the UK.” .