Could Chancellor Rachel Reeves potentially undo alterations in the non-domicile inheritance tax rules?
Title: Rumors Swirl Around Potential U-Turn on Inheritance Tax for Wealthy Immigrants in the UK
Rachel Reeves, the UK's chancellor, could be mulling over a U-turn on controversial inheritance tax (IHT) rules that have left wealthy individuals reeling since the abolition of the non-dom status.
The non-dom tax regime bit the dust in April, signaling an era of increased taxation for wealthy foreigners residing in the UK. The government has also disclosed that overseas assets owned by UK residents would be included in their estate for IHT purposes following a specified period under the new regulations.
Concerns about wealthy immigrants fleeing the country as a result of escalating taxes have cropped up since the demise of the non-dom tax regime.
A recent analysis by Henley & Partners reveals a net outflow of 10,800 high-net-worth individuals from the UK in 2024.
Our website recently had a chat with a millionaire who's calling it quits on the UK due to the non-dom tax status abolition.
Joshua Gerstler, a chartered financial planner for The Orchard Practice, weighed in with his thoughts, stating, "Rachel Reeves needs to learn sooner rather than later that the more you tax the wealthy, the more likely they are to leave, and the less well-off hardworking Britons will be."
With whispers of an exodus sparking, Reeves is said to be considering a U-turn on IHT for non-doms.
Can Rachel Reeves Reverse the Non-Dom IHT Changes?
The initial proposals for ending the non-dom tax regime originated from the former Tory government; however, Chancellor Reeves has extended the government's measures further since Labour took power.
The updated guidelines also state that UK residents for at least ten years of the past twenty would be subject to IHT on a worldwide basis. But with mass exodus on the horizon, the Financial Times is now reporting that Reeves is entertaining the idea of reverting the IHT non-dom changes.
News of a potential U-turn has been met with welcomed approval by advisors and estate agents active in London's prime property market, where worry over dwindling international demand for luxury homes has been palpable.
Becky Fatemi, executive partner at Sotheby's International Realty UK, said, "The rumor that the chancellor may reverse inheritance tax for non-doms finally suggests a quiet admission that the government got it wrong."
Fatemi went on to say, "The current regime has driven wealth creators out of the UK, in many cases for good. Inheritance tax, more than any other policy change, was the nail in the coffin. It’s what tipped many non-doms over the edge. We've seen clients go to extraordinary lengths — restructuring, relocating, spending significant time and money — simply to avoid a punitive future for their estates. But tellingly, many didn't sell their London homes. They held onto them, hoping the political mood music might change."
Fatemi added, "A U-turn won't reverse the exodus overnight, but it could stop the bleeding. It might convince some to keep a foothold in the UK - and even tempt a few to come back. It's a small step, but a significant one pointing towards the bigger rethink that's urgently needed: the UK's broader tax stance on international wealth."
Toby Downes of property firm Haringtons UK, shared similar sentiments, stating, "A significant number of international homeowners have already left the UK in response to the changes - not because they wanted to, but because the tax implications made it unviable to stay. Many haven't sold. Instead, they've chosen to rent out their homes, keep them for occasional visits, or leave them for family to use. That suggests a key detail: they're hoping to return."
Downes continued, "That's why we haven't seen a flood of top-end homes hit the market. These aren't fire sales - they're strategic pauses. If the rules are softened, we could see those owners quietly re-enter the fold. Some departures may be permanent, but for many, the door is still open."
He posited that reversing the IHT change might not garner much fanfare domestically, but it could offer the catalyst the market needs, adding, "It's not just about property - it's about people choosing to invest, live and spend in London again. Without that shift on inheritance tax, however, we risk watching more of them slip away - and they won't all come back."
A Treasury spokesperson expressed, "The government will continue to work with stakeholders to ensure the new regime is internationally competitive and continues to focus on attracting the best talent and investment to the UK."
Additional Insights:
- The non-dom tax regime was scrapped in April, effectively meaning that more overseas earnings for high-net-worth individuals living in the UK would eventually be taxed in the UK.
- Under the new inheritance tax (IHT) rules, overseas assets owned by those residing in the UK are to be included in a person's estate for IHT purposes after a specified period. This change ensures that more of the wealth associated with non-domiciled individuals will be taxed when they pass away.
- Some are expressing concerns that the end of the non-dom tax regime and the increased inheritance tax on global assets may have a negative impact on the UK economy, as wealthy non-doms may choose to relocate to other countries with more favorable tax policies. This could lead to a loss of talent, investment, and revenue for the UK.
- Estate agents and property professionals are hopeful that a potential U-turn on the inheritance tax changes may help stabilize the market and boost demand for luxury properties in London. Many have observed that a significant number of international homeowners have already departed because of the tax changes, and some have kept their homes with the expectation that the political climate may shift in their favor.
- The potential U-turn on inheritance tax (IHT) for non-doms could fundamentally affect the London property market, as it may encourage wealthy non-domiciled individuals to reconsider keeping a foothold in the city.
- With the disclosure that overseas assets owned by UK residents will be included in their estate for IHT purposes under the new regulations, the finance and business community is closely observing developments in the UK's tax policies for non-domiciled individuals.
- In the realm of personal finance, the possibility of a U-turn on IHT for non-doms has sparked discussion in the general-news sector, as the consequences for the UK's economy, especially in its prime property market, remain uncertain.
