‘Non-doms’ rush for advice on Labour’s tax reform plans


Advisers have reported a rise in “non-dom” clients looking for ways to soften the blow of the Labour party pledge to tighten tax breaks if they win the next general election.

Several tax advisers told FT Money they had been flooded with calls and emails after Labour announced late on Monday that it would go further than the government to clamp down on tax privileges for foreigners living in Britain who are domiciled overseas.

“It has been crazy since Monday,” said David Lesperance, founder and principal of international tax advice firm Lesperance & Associates. “Jeremy Hunt’s [Budget] announcement gave some people false hope about the future. The hopes of the hesitant died pretty quickly this week.”

In last month’s Budget, the chancellor pledged to scrap and replace the 200-year-old tax regime that exempts non-doms from paying UK tax on foreign income, and capital gains for up to 15 years. But at the same time Hunt announced sweeteners designed to mitigate the impact for existing non-doms when the rules change in April next year.

Labour said this week it would remove two of these measures, including allowing non-doms to shield foreign assets held in an offshore trust from inheritance tax permanently.

Rachel Reeves, shadow chancellor, also promised to remove a one-off 50 per cent tax discount for non-doms who bring in foreign income during the 2025-26 tax year, the first year of the new regime. The opposition party is polling strongly ahead of a general election expected this year.

Tax experts said there would be three camps of people affected by Labour’s proposed changes, with two groups more likely than before the party’s announcement to consider leaving the country. 

Individuals who had been non-dom in the UK for less than 10 years were less likely to leave immediately, as the government had pledged its new regime would apply inheritance tax only when an individual has been UK tax resident for 10 years. Labour has not said it will change this.

However, the second group included non-doms who have been in the country for more than 10 but less than 15 years. They face becoming immediately subject to UK inheritance tax on their global assets from April 6 2025.

The final group of affected people include those who had placed foreign assets into trusts when they were non-domiciled and had subsequently been deemed UK-domiciled. Under a potential future Labour government, they also face having UK inheritance tax of 40 per cent applied to their worldwide assets, including those held in trusts, after the rules change.

“The threat of global inheritance tax is huge,” said Tim Stovold, partner at Moore Kingston Smith. “The financial consequences of people staying in the UK could be catastrophic for their personal financial planning and is causing people to act quickly.”

As well as a move out of the UK, Stovold mentioned a halfway option where individuals could reduce the number of days they spent in the country. This would allow people to become a non-UK tax resident and stop accumulating “UK years”, which under the new residence-based system would be used to calculate whether someone is liable for inheritance tax. Depending on their circumstances — such as family ties and location of residences — they could still retain a home in the UK and spend a limited amount of time in the country.

Meanwhile, even if their worldwide wealth were to become subject to UK inheritance tax, some might benefit from existing UK inheritance tax breaks, such as business property relief, which applies to business assets, Stovold added.

Nikita Cooper, an international tax specialist at accounting firm Price Bailey, said she was speaking to clients who had set up non-UK trusts to consider their options. “Those structures may no longer be any good, so they need a health check to understand should they be unwound, kept in place, or should the individuals be planning to move out of the UK,” she said.

For some international families thinking about the impact of the new proposed four-year residency rule, it is possible for spouses, where one person is non-UK tax resident, to organise assets so they would hold the overseas assets, she added.

Another option is insurance. “Life insurance has been used for many years as an inheritance tax planning tool that is reasonably immune to changes in tax law from whichever party is in government,” said Stovold. “The approach is to calculate the expected inheritance tax liability and then put in place a life policy that will pay out that amount when the liability falls due.”

For non-doms intending to leave the UK in the coming years, he added, there could be an inheritance tax liability for the period they live here under the new regime — plus a number of years after leaving, depending how long the new rules set the “tail” to the liability. This could be covered with a life insurance policy for this period only, since a policy for a fixed term is generally cheaper than a whole-of-life policy.

Ultimately, the environment remains difficult for individuals or advisers to plan due to a lack of detail about how exactly future reforms would work.

“The issue is it is an ongoing saga, unfortunately. We anticipate that there could be further changes,” Cooper said. “The uncertainty is really not helpful for tax planning or advising clients.” 

Labour dismissed claims that non-doms would leave the country because of rule changes this week, with one party official saying the government had issued similar warnings last year about the impact of any changes to the non-dom regime before Hunt’s decision to scrap it.



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