UK to soften tax rules for wealthy foreigners after millionaire exodus, Rachel Reeves says

The U.K. will soften some planned changes to its controversial non-dom tax rule following concerns of a millionaire exodus, the Treasury has confirmed.

Britain's 200-year-old non-dom regime permits people living in the U.K., but who are domiciled elsewhere for tax purposes, to avoid paying levies on income and capital gains earnings overseas for up to 15 years. The regime has long courted controversy, leading U.K. Finance Minister Rachel Reeves in her October budget to confirm that it would be abolished from April 2025, and that all long-term residents would be subject to inheritance tax (IHT) on their worldwide assets, including those held in trust.

Speaking at a fringe event at the World Economic Forum in Davos, Reeves said the government would soon put forward an amendment to the country's Finance Bill, increasing the generosity of a rule which allows non-doms to bring money to the UK without paying significant taxes. 

"We have been listening to the concerns that have been raised by the non-dom community," Reeves told The Wall Street Journal's Emma Tucker when asked about recent departures of the ultra-wealthy.

"In the finance bill, we will be tabling an amendment which makes more generous the temporary repatriation facility, which enables non-doms to bring money into the UK without paying significant taxes," she added.

Reeves on Thursday also sought to reassure wealthy overseas investors that the changes would not affect double-taxation agreements held between the U.K. and other countries.

"There's been some concerns from countries that have double taxation conventions with the U.K., including India, that they would be drawn in to be paying inheritance tax. That's not the case. We're not going to be changing those double taxation conventions," she said.

In a statement to CNBC confirming the plans, a Treasury spokesperson said the tweaks were designed to motivate non-doms "to bring their funds to the U.K., encouraging them to spend and invest this money here."

"While we do not expect these changes to impact the £33.8 billion of tax revenue that the OBR forecast to raise over five years, they reflect our continued engagement with stakeholders to make sure the reforms announced at Budget operate as intended," the statement added.

The government's October clampdown on non-doms formed part of wider measures aimed at the upper echelons, with new levies placed on private equity bosses, private schools, second homes and private jets.

Critics warned at the time that the moves would spark a mass exit of ultra wealthy individuals — many of whom, they said, would be key contributors to the government's pro-investment agenda.

An estimated 10,800 millionaires left the U.K. last year, according to updated figures from global analytics firm New World Wealth and investment migration advisers Henley & Partners, a 157% increase on 2023.

"Most eligible HNW taxpayers will wish to make full use of the temporary repatriation facility (TRF) and will welcome the news that the scheme is to be made more attractive,"

James Austen, tax partner at Collyer Bristow, said that the amendment signaled on Thursday would be welcome news for many high net worth taxpayers, but he questioned whether it would be enough to stem wealth outflows.

"The government's proposed amendment to the Finance Bill is not a significant change to its plans, and many of the concerns about the new regime, particular in relation to trusts and IHT, remain. I don't expect this will 'move the dial' for most non-doms," he said by email.

"The TRF is welcome news to the non-dom community still in the UK who may now stay a while longer, although this may only delay but not prevent their plans to leave, and for others it may be too little too late," added Matthew Braitwaite, head of Wedlake Bell's private client offshore team.