In an effort to make Britain great again, the island state’s chancellor of the exchequer-which sounds better than ‘finance minister’-Rachel Reeves announced this week at Davos that plans are afoot to abolish ‘non-dom’ status-those whose permanent home or domicile is outside Britain for tax purposes-will be amended to allow a more generous phase-out of tax benefits A flight of millionaires-some 9,500 in 2024 alone-is indeed a matter of concern. The tax changes are designed to take away the incentive to seek domicile abroad-primarily to places like Dubai, Italy, Malta and Switzerland. But there is the danger of swelling the numbers of the wealthy leaving the country. London may widen the transition window. But that may not be good enough. Since most non-doms are of foreign origin, they could just wait out the transition period before finalising their plans to migrate.Britain wants to move to a residence-based tax regime and expects to convince HNIs holding wealth overseas to bring it ‘home’. There is legitimate concern over the flight of capital as witnessed by delisting of companies from London Stock Exchange. British HNIs are earning a big chunk of it overseas and may not want to get it into the country’s inheritance tax regime. The government says it is heeding the concerns of non-doms. But it may have to go in for a comprehensive overhaul of tax policy to convince them to bring their money onshore. The longer the issue plays out, the British exchequer stands to lose more revenue through ‘HNIxits’.
Since Brexit, Britain has lost the pulling power of investor visas for HNIs to settle in the country. This is at a time when other developed economies are ramping up their investment-immigration programmes. The internationally wealthy community is highly mobile and the British government’s rethink may be a futile rearguard exercise. It has introduced uncertainty over taxation that reinforces migration decisions. Britain could look at competing models that are delivering better outcomes in the arrival lounge.
