Wealth Exodus: Stopping Non-Dom Flight

Wealth Exodus: Stopping Non-Dom Flight

2 Apr

Written By Sam Bidwell

As predicted by the Adam Smith Institute, the abolition of the UK’s non-dom tax regime risks pushing wealth creators and High Net Worth Individuals (HNWIs) away from the UK, at a time when Britain desperately needs to retain wealth and talent.

This threat is not a theoretical one - HNWIs are already leaving the UK. According to the Adam Smith Institute’s Millionaire Tracker, the UK is set to lose a greater proportion of its millionaires in the world over the course of this Parliament.

However, after extensive consultation with legal experts, financial advisors, and accountants, the situation appears to be even more concerning than first anticipated.

Due to the way in which the Government’s planned changes to the non-dom regime will interface with other aspects of UK law, non-doms could face taxation on sums vastly exceeding their actual income from 6th April 2025.

Two areas provide particular cause for concern. First, the current rules governing the transfer of assets abroad are excessively wide-ranging. In essence, if a UK resident owns a foreign company, its profits can be treated as personal income and taxed at 45%.

Historically, non-doms have been shielded from this under Articles 726 and 730 of the Income Tax Act. However, the new Finance Bill seeks to dismantle these safeguards. Should this pass, non-doms will face not only full UK personal taxation, but also taxation on the profits of any foreign entities that they control, leading in some cases to an effective tax rate of 67%.

Second, current plans for the Temporary Repatriation Facility are uncertain and unclear. There is significant concern amongst HNWI that funds repatriated under the TRF will be subject to additional taxation, including through HMRC’s Transactions In Securities (TIS) and GAAR (General Anti-Abuse Rule) mechanisms.

This uncertainty risks driving even more High Net Worth Individuals away from the UK, shrinking the pool of capital available to UK businesses and reducing the Treasury’s overall tax take.

The Government’s new Finance Bill should preserve the Section 726 and Section 730 protections for structures and transactions established prior to 6th April 2025, and state unequivocally that funds repatriated under the TRF are exempt from additional taxation.