Chancellor desperately seeks to ‘backtrack without backtracking’ on 40% inheritance tax raid as exodus of super-rich threatens to blow £34bn hole in Britain’s finances
Chancellor Rachel Reeves is considering a humiliating U-turn on her flagship non-dom tax reforms as wealthy individuals abandon Britain in droves, threatening to blow a massive hole in the nation’s finances.
The Treasury is actively reviewing the controversial 40 per cent inheritance tax charge on non-doms’ worldwide assets – which only came into force in April – amid an exodus of billionaires to tax havens like Dubai, Italy and Switzerland.
Government insiders have admitted the Chancellor is desperately seeking ways to “backtrack without backtracking” on the punitive measures after intensive lobbying from City figures warning of catastrophic damage to Britain’s competitiveness.
The Great Escape
The rethink follows a wave of high-profile departures that have sent shockwaves through Westminster:
- Lakshmi Mittal: The steel magnate who once owned the world’s most expensive home (bought for £67m in 2004) is fleeing Britain
- Nassef Sawiris: Egypt’s richest man is planning his exit, citing the tax regime as a key factor
- 10,000+ millionaires left the UK in 2024 alone – a staggering 157% increase on 2023
One senior City figure predicted: “There will most likely be some tweaks to inheritance tax to stop the non-dom exodus.”
‘Causing Most Heartburn’
Government sources admit that exposing non-doms’ global assets to UK inheritance tax is “causing most heartburn” among the wealthy individuals Britain desperately needs to attract investment.
The review is already underway, with Treasury insiders confirming they would be prepared to amend the regime if it proved damaging to Britain’s international competitiveness – a stunning admission of failure.
A senior financier in regular contact with Reeves revealed the Government is attempting to find a way of “backtracking without backtracking” on the non-dom changes, with particular focus on the inheritance tax issue.
Political Nightmare
Any retreat would prove politically catastrophic for Reeves, who is already reeling from:
- Her U-turn on Winter Fuel Payments affecting 10 million pensioners
- Implementing £5 billion in cuts to sickness and disability benefits
- Growing accusations of economic incompetence
We won’t do it, the politics are dreadful,” admitted one Labour adviser, while another senior official noted the crackdown on non-doms was “one of our most popular policies.
The Numbers Don’t Add Up
The financial implications are devastating:
- Labour claimed the trust crackdown would generate £430 million annually
- The Office for Budget Responsibility now projects just £200 million per year by 2029-30
- Research suggests a £34 billion shortfall from the non-dom exodus could wipe out the Chancellor’s razor-thin fiscal headroom
The Centre for Economics and Business Research warns the tax changes will cost more than they raise if just one in four affected individuals leaves – and the exodus is already well underway.
‘Not Competitive Anymore’
Tax adviser Robert Brodrick of Payne Hicks Beach didn’t mince words: “The fact is that the UK is no longer nearly as attractive for internationally wealthy people as somewhere like Italy.
The new rules, which came into force in April, mean:
- 40% inheritance tax on global assets for non-doms
- Closure of offshore trust loopholes
- End of the centuries-old domicile concept
- Anyone UK resident for 10+ years faces worldwide taxation
Treasury in Damage Control
In a desperate attempt at damage limitation, the Treasury stated: “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.”
But City insiders say the damage is already done, with four in ten remaining non-doms actively considering ditching the UK for more favourable jurisdictions.
Previous U-Turns
This wouldn’t be Reeves’ first embarrassing reversal. In January, she was forced to soften the rules at Davos, telling the Wall Street Journal: “We have been listening to the concerns that have been raised by the non-dom community.”
She announced then that she would make “more generous the temporary repatriation facility” – but tax advisers warned it wasn’t nearly enough to stem the tide.
The Irony
Perhaps most embarrassing for Labour is that the abolition of the non-dom regime was initially announced by the previous Conservative Government. Reeves simply confirmed it in her October Budget, adding the inheritance tax changes that have proved so toxic.
Now she faces the humiliation of reversing not just her own policy, but one she inherited and doubled down on.
What Happens Next?
Any changes would typically be announced in the autumn Budget, though some in Government believe Reeves will hold firm despite the mounting pressure.
But with billionaires voting with their feet and Britain’s reputation as a destination for global wealth in tatters, the Chancellor may have no choice but to perform yet another screeching U-turn.
As one City source put it: “The politics are awful, but the economics are even worse.
Image credit: The Chancellor delivers the Autumn Budget 2024 – © HM Treasury, Open Government Licence v3.0, via Wikimedia Commons
