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A wave of wealthy people is preparing to leave the UK before April to benefit from changes to non-dom rules in last month’s Budget, tax advisers say.
Accountants and lawyers said that many people were deciding to leave the country in the coming months because of changes to the requirements for inheritance tax exemptions.
“[The rules are] basically saying if you want to go, you have to go this tax year,” said Philip Munro, partner at law firm Withers.
He added that the recent changes — including measures intended to soften the change of regime — had “crystallised the decision to leave” for many non-doms.
The Budget confirmed the abolition of the non-dom system, which allows UK tax residents whose permanent home or “domicile” is overseas to avoid paying British tax on their foreign income or capital gains for 15 years.
It also set out rules that require people to live outside the country for between three and 10 years before they are exempt from UK inheritance tax, or IHT, of 40 per cent on their foreign assets.
However, if someone emigrates in the current tax year, they will reduce their exposure to UK IHT on their worldwide possessions to a maximum of three years.
“Particularly if you’re elderly, the difference between surviving three years and surviving 10 years is very meaningful,” said Munro.
Edward Hayes, director at law firm Burges Salmon, said the provision meant “that a lot of clients are in the position where they either leave almost straight away . . . or stay longer and face the maximum 10-year [wait] when they go in the future”.
He added that the £33bn the Labour government says it will raise from the non-dom changes was “an enormous figure” that the industry considered “very optimistic”.
As part of the broader changes in chancellor Rachel Reeves’ Budget, the old system under which IHT is levied only on non-doms’ UK assets will be abolished from the start of the next tax year.
Instead, IHT will be imposed on people’s UK assets for their first 10 years of residence in the country, after which it will apply to all of their holdings.
Labour had previously sought to make non-doms leaving the UK liable for IHT on their global assets for 10 years after their departure from the country.
But, in a concession to non-doms, Reeves cut this timeframe to between three and 10 years, depending on how long they had lived in the UK.
The decision to give people leaving before April next year a three- rather than up to 10-year countdown was a further attempt to compromise with non-doms.
Emma Chamberlain, a specialist barrister, said the April deadline was encouraging people in their sixties and above to leave earlier. She added that younger non-doms were less worried about a long period of exposure to IHT and were more likely to buy insurance to cover the risk of death duties.
Under the old system, people could leave the UK without being liable for IHT on their global assets for the maximum 15-year period in which they could retain non-dom status in the country.
If they remained in the UK for more than 15 years, they would lose their non-dom status, and, if they subsequently moved abroad, they would have to wait three years before being exempted from IHT on non-UK assets.
Alexandra Britton-Davis, partner at Saffery, an accountancy firm, suggested that a rush of non-doms leaving during this tax year could have a knock-on impact on the government’s expected revenue.
“We will definitely see people accelerating their departure ahead of April 2025, who may have stayed a couple more years paying tax on all their gains and worldwide income,” she said.
Reeves said during the Budget that the non-dom reforms were expected to raise £12.7bn over the next five years, although the Office for Budget Responsibility, the independent fiscal watchdog, flagged the estimates as “highly uncertain”.
The £12.7bn figure is in addition to the £21bn in new revenue predicted by the previous Conservative government when it announced the scrapping of the non-dom regime in March.
The Treasury said: “These arrangements strike the right balance, ensuring that people who choose to settle in the UK pay tax on the same basis as other long-term UK residents, whilst giving people who have planned their affairs based on the current set of rules a short period to adjust.”
