The hordes of wealthy foreigners leaving Britain to escape the government’s non-dom (not domiciled) crackdown are being joined by high-net-worth Brits capitalising on an arcane element of the policy that has made it easier for them to avoid paying inheritance tax (IHT).
Wealth advisors and tax lawyers have reported a “second wave of interest” from middle-aged rich UK nationals looking to relocate in the knowledge that under new tax rules introduced in the overhaul, their estate would no longer be liable to UK IHT.
As part of her contentious non-dom changes at last year’s Budget, Rachel Reeves opted to change the tax system from one that focused on where people were domiciled — an esoteric concept meaning the country someone treats as their permanent home — to one focused on residence.
Doing so allowed her to abolish the centuries-old ‘non-dom’ status in favour of a less generous system — known as the Foreign Income and Gains regime — that deems wealthy immigrants resident after just four years.
The move — which was accompanied by a sharp tightening of how the Exchequer treats non-doms’ foreign-held trusts — is said to have sparked an exodus of rich foreigners who claimed the status.
It has emerged that several high-profile non-doms — including the well known Aston Villa football club co-owner and Goldman Sachs’ Richard Gnodde — left in the aftermath of the changes, leading to warnings from advisors and economists that the change has backfired and might cost the Treasury money.
But wealth experts are now sounding the alarm that the decision to shift to a residence-based scheme is inadvertently incentivising their wealthy British clients to leave the UK too, causing fears that the hit to public finances may be greater than first feared.
James Quarmby, founding partner of Stephenson Harwood’s private wealth team, said that he had seen a “large increase in British clients” seeking relocation advice since April because the new rules mean they can escape liability to UK IHT after spending just 10 years abroad.
“The rules are driving away non-doms and probably stop many more coming over”, he said. “But it will also encourage wealthy Brits to expatriate”.
Quarmby highlighted that many of the jurisdiction seeking to attract wealthy retirees generally have no or low inheritances taxes, adding: “What could be better — retiring abroad in the sun, lower tax on your pension — Greece has seven per cent, Cyprus has seven per cent — and after 10 years no UK IHT? It’s an amazing deal”.
A spokesperson for the Treasury said: “The UK remains highly attractive. Our main capital gains tax rate is lower than any other G7 European country and our new residence-based regime is simpler and more attractive than the previous one, whilst it also addresses tax system unfairness”.
Effect on real estate: The continued rise in wealthy residents leaving the UK has caused super-prime property sales in London to plunge by over £100 million this year, according to a fresh study that brings the woes afoot at the upper end of London real estate into even sharper relief.
During the first half of this year, the total value of sales worth 15m or more in the capital dropped by £100m compared with the first six months of 2024, the Beauchamp Estates research found, due to their being considerably fewer transactions. The fall comes off the back what was already dire 2024 for the top-end of London property, when super-prime valuations fell to their lowest level in over a decade.
In the first half of last year, total transactions plummeted by 23 per cent year on year, falling from £1.1 bn in the first six months of 2023 to £795m the same period a year later. This year, between January and June total transactions in London fell by a further 13 per cent, taking the total value of sales to £694m.
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