‘The mood music isn’t good’: Ultra-wealthy exodus is a disaster for Reeves – The Telegraph

The Chancellor’s non-dom crackdown is drying up an important revenue stream for the Treasury
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Rachel Reeves likes to present herself as a friend of the global elite, rubbing shoulders with finance ministers in Washington and posting pictures online meeting Wall Street billionaires.
But behind the facade, a storm is brewing at home over the Government’s change to non-dom tax rules on these financial masters of the universe, who help fuel a disproportionate amount of UK tax receipts.
Fresh figures this week showed that the British Government is having to borrow more than expected, as tax income typically paid by the wealthiest has disappointed since the start of the year.
Lower capital gains taxes, levies on self-assessed income and a weak growth in financial services bonuses have also contributed to the dire picture for Reeves.
The list of wealthy non-doms and British business owners fleeing the UK is also growing longer by the day, with places such as Dubai, Italy and Greece mopping up Britain’s richest émigrés.
Last week, Richard Gnodde, Goldman Sachs’ most senior banker outside the US, and British billionaire brothers Ian and Richard Livingstone became the latest to shift their tax domicile outside the UK.
They join Egypt’s richest man, Nassef Sawiris, who co-owns Aston Villa Football Club. Steel magnate Lakshmi Mittal, whose family is worth £15bn, is expected to follow.
Advisers to wealthy global elites warn the chickens are coming home to roost after Reeves’s tax changes, and that efforts to scale back attacks on the wealthy have fallen short.
As the Chancellor returns from her Washington trip, is she starting to regret her move to collapse the non-dom regime?
Among the first to know when a billionaire or multimillionaire decides to up and leave are their tax advisers.
Ceri Vokes, a partner at law firm Withers, says around 10pc to 15pc of her clients have left Britain because of Reeves’s less generous non-dom scheme and changes to inheritance tax for business owners.
Those with the most to lose are the first to leave, she says.
“It’s definitely the case that the clients who left were those at the upper end of the wealth spectrum. We definitely saw more billionaires leave than millionaires and hundred-millionaires,” Vokes says.
Reeves in January tried to temper the blow with a more generous phase-out of the tax benefit but it “had absolutely zero impact on client behaviour”, Vokes adds.
Britain’s non-dom rules, which date back to the days of William Pitt the Younger, allow foreigners living in the UK to avoid paying tax on income from abroad.
In the 21st century, these wealthy non-doms have become an increasingly important source of tax revenue for successive British governments.
According to the latest government figures, there were 37,800 non-doms in the UK in 2022 who chose to only have foreign income or capital gains taxed if brought into the country.
On average, these people paid £170,700 each in income and capital gains taxes as well as National Insurance contributions.
In comparison, the average British worker pays £7,000 in income tax and National Insurance and most would have paid no capital gains tax at all.
Stuart Adam, of the Institute for Fiscal Studies, says it is impossible to say with any certainty yet whether the blow from wealthy people upping and leaving is bigger than Britain’s fiscal watchdog had anticipated.
Indeed, just as much of a concern is how many people would normally come that now won’t – a difficult thing to measure.
There is a lot at stake: the top 1pc of the highest-earning workers pay 28.2pc of all of the Government’s income tax revenues. If you zoom out a little further, the top 5pc pay just less than half at 48.8pc.
“One of the consequences of tax revenue becoming more reliant on a smaller number of people is that it does make the public finances more vulnerable to the behaviour of that small number of people,” Adam says.
“If you did see a large exodus, that would have an outside impact on the public finances. That is a reason to worry,” he adds.
While the Office for Budget Responsibility has done its best to “guess” the impact of policy changes to inheritance taxes and the non-dom scheme, the overall signal also matters and is far harder to estimate, Adam says.
“Once you have changes to the non-dom regime, inheritance tax, capital gains tax and VAT on private schools … lots of these things affect overlapping groups of people.
“[The question is] whether people take it as a signal of a direction of travel and worry about what may be coming down the line, or what kind of an environment the UK is to be in, and therefore you have a bigger effect than you might expect from individual policies in isolation,” he says.
Some studies suggest there is already a surge of millionaires abandoning Britain for lower-tax regions because of the UK’s change to the non-dom rules, which were first floated by the previous Conservative government.
Henley & Partners claimed the UK lost 10,800 people who are millionaires last year, more than twice as many as in 2023 and more than any country except much more populous China.
The firm blamed changes to the non-dom regime as one of several factors.
Some economists have questioned the robustness of such claims, because the methodology relies partly on simple location data from websites such as LinkedIn.
However, from Vokes’s view on the ground, something big is definitely happening.
While focus has been on foreign non-domiciles, native Britons with much to lose from tax changes are also adding to the exodus of the wealthy.
“There’s definitely a feeling in the business community that the UK is much less friendly than it used to be,” she says.
“That is really centred on the changes to inheritance tax for business relief. The removal of that effectively with one year’s notice has undermined lots of people’s confidence in the UK.”
Whereas business owners could previously mostly pass down their enterprises without worrying about inheritance tax, Reeves scaled back the generosity of this exemption at the autumn Budget from next year.
At the same time, non-doms living in the UK for a decade also face paying inheritance tax on all of their assets around the world – an obligation that follows them for three to 10 years after they leave.
“The majority of my clients who have left were people who owned their own businesses. They were businesses that they wanted to keep running,” Vokes says.
“They did not want to be subject to what would have been a very large 20pc inheritance tax charge on their deaths. The businesses are extremely valuable, but they just wouldn’t be able to raise that kind of liquidity in a short period if they were to prematurely die.
“They were predominantly people in their 40s and 50s, still actively running their businesses. It wasn’t that they couldn’t afford to live in the UK any longer; it was that they couldn’t afford to die in the UK.”
Charlie Mullins, the founder of Pimlico Plumbers, became another high-profile exit after Labour took power, swapping London for Marbella, in Spain.
The Livingstone brothers, who are among Britain’s richest real estate investors, worth $9bn (£7bn) between them, are domiciled in Monaco, according to regulatory filings. Gnodde is moving to Milan.
The big-money departures are being noticed by those who buy and sell property for Britain’s wealthiest in the country’s most expensive postcodes in central London.
“The mood music isn’t good. There is no doubt, it’s a very sober market out there,” says Roarie Scarisbrick, partner at Property Vision.
House sales are down by 15pc from a year earlier among high-end properties, he says. Tax changes weigh heavily in jittery buyers’ minds.
“It’s in every conversation we have. Everybody’s reading about it all the time. Everybody’s talking about it. The changes that came in last year, together with the uncertain environment, which the new Trump era has ushered in, are the primary topic of conversations with our clients,” he says.
This is echoed by Rosy Khalastchy, of luxury estate agents Beauchamp Estates, although she says there are some newcomers from countries such as China, the US and Nigeria.
“There’s definitely an exodus from people in the UK. However, there are also incoming people. So we’re losing quite a few of the wealthier residents, but we’re gaining in their place other wealthy residents,” she says.
However, the UK faces stiffer competition than in the past from warmer countries with friendly tax rules such as Italy and Greece, she warns.
“People are leaving on the basis that they can, whereas before they had to be in one place to work. They can work from anywhere now.
“We’ve got people saying they want to go because they’re not happy with the taxation, the politics or other options that have opened up. They can have the same lifestyle but with a warmer climate, less taxation,” she says.
As Reeves continues to glad-hand the global elite, Britain is becoming a tougher sell just when it needs them the most.
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