The Chancellor is to reverse some changes to tax increases on so-called non-doms amid a backlash from millionaires.
The move appears designed to head off an exodus of the super rich after reports that approaching 11,000 millionaires left the country last year.
There have been reports of a departures to places such as Dubai, where there is no income tax, and other destinations, such as Italy, Cyprus, Malta and Portugal, which are using their tax systems to incentivise the wealthy to come.
Speaking at the World Economic Forum in Davos, Rachel Reeves revealed that the government would shortly table an amendment to the Finance Bill.
“We have been listening to the concerns that have been raised by the non-dom community,” she told Emma Tucker, editor of The Wall Street Journal.
The government amendment will increase the generosity of the temporary repatriation facility, which enables non-doms to bring money instantly to the UK without paying significant taxes.
The chancellor also moved to reassure wealthy non-doms that the changes to the rules would not affect double-taxation agreements, which could have seen some hit with large inheritance tax bills.
She said: “There’s been some concerns from countries that have double taxation conventions with the UK, including India, that they would be drawn into paying inheritance tax.
“That’s not the case: we are not going to change those double-taxation conventions.”
Britain has lost a net 10,800 millionaires to migration last year, a 157 percent increase on 2023. This is a relatively small proportion of UK millionaires, yet there are some worries this will increase further.
The record outflow, mainly to other European countries such as Italy and Switzerland, as well as the United Arab Emirates, was especially large among the UK’s richest residents: 78 centi-millionaires and 12 billionaires left the country last year.
The exodus is set to continue. Tax advisers have reported that growing numbers of British entrepreneurs are prepared to leave the country after the tax rises announced in the autumn Budget.
Rachel de Souza, tax partner at accounting firm RSM UK, told the Times: “Whilst an increase to the temporary repatriation facility must be a good move, it is woefully inadequate to prevent wealthy non-dom and British entrepreneurs from leaving the UK.
“The way to stem this exodus would be to maintain the exemption from IHT to offshore trusts but also reverse the proposed changes to agricultural and business property relief which impacts the farmers and entrepreneurs.”
Last year the Office for Budget Responsibility (OBR) predicted that Labour’s changes to the non-dom regime would bring in more than £33 billion for the exchequer.
But reaching this figure hinges not only on non-doms staying, but also bringing assets worth tens of billions of pounds into the UK to take advantage of the facility’s new lower tax rate of 12 percent.
The OBR admitted there was a “very high” degree of uncertainty in its estimates. Many doubt that the cohort of wealthy people who were thinking of relocating to London will ever come now.
Stephen Kenny, head of private client at PKF Littlejohn, an audit and accountancy firm, questioned whether the U-turn will avert a continuing exodus of the wealthy.
The move appears designed to head off an exodus of the super rich (Image: Getty)
“This very much feels like too little too late,” he said.
“Many in the industry raised the likely impact these changes would have, and Labour has had the opportunity to reassure the internationally mobile community that the UK is open for business. But they have failed to heed the warning until too late.
“People feel it is impossible to remain in the UK, not only because of changes in the tax regime but because they have no confidence that it won’t change further in the future. I doubt this announcement will do much to change people’s opinion.”
A Treasury source said: “We’re always interested in hearing ideas for making our tax regime more attractive to talented entrepreneurs and business leaders from around the world to help create jobs and wealth in the UK.”
Dominic Agace, chief executive of leading estate agents Winkworth, with offices in all prime areas of the capital, part of a nationwide network of over 100 offices, said: “The non-dom measure has definitely had an impact on wealthy high net worth individuals wanting to buy houses in central London and a row back on measures is to be welcomed, although on the face of it these don’t seem enough.”