Reeves Considers Changes to Non-Dom Inheritance Tax Amid UK
Is the UK’s effort to build a fairer tax system threatening to drive out the very individuals it seeks to tax more effectively?
Chancellor Rachel Reeves’ decision to reform the UK’s non-domiciled (non-dom) tax regime especially the extension of inheritance tax (IHT) on worldwide assets, has triggered both support and serious backlash.
The Government’s objective was clear: close tax loopholes that have long allowed ultra-wealthy individuals to avoid paying inheritance tax on foreign-held assets.
But as the real-world implications of these changes take hold, there are signs the policy may be under revision. Mounting pressure from financial institutions, a growing number of wealthy departures, and concern over the UK’s competitiveness have prompted Treasury-led reviews.
As we approach the Autumn Budget 2025, questions loom over whether the policy will remain intact or be softened to strike a new balance between fairness and economic pragmatism.
What Is Non-Dom Status and Why Did the UK Target It?
The UK’s non-dom tax status was historically offered to individuals who, while living in Britain, maintained a permanent domicile elsewhere.
This allowed them to legally sidestep UK tax on overseas income, capital gains, and inheritance, provided those funds were not brought into the country.
This regime was especially appealing to high-net-worth individuals and international entrepreneurs seeking to benefit from the UK’s business infrastructure while shielding global wealth from taxation.
By abolishing non-dom status, Reeves aimed to realign the UK’s tax system with principles of equity.
In her October 2024 Budget, she argued that individuals who make the UK their home should pay taxes like everyone else, particularly when it comes to inheritance tax.
The move also intended to raise funds for public services and tackle inequality. Initial projections from the Office for Budget Responsibility (OBR) suggested the reform could generate £12.7 billion over five years.
However, as detailed costings evolved, this was revised to just £200 million annually by 2029-30 from trust-related adjustments, exposing the limited yield of some measures.
Why Did the Inheritance Tax Change Spark a Backlash?
The controversy intensified when the April 2025 tax changes came into force, imposing a 40% inheritance tax on the global assets of all UK residents, regardless of domicile status.
Even assets placed in offshore trusts were no longer shielded. This reform went beyond merely removing non-dom status, it redefined how wealth is taxed in the UK.
Wealth managers, legal advisers, and financial consultants quickly warned that the wide net of the new rules could deter global investors.
Critically, the reforms disrupted longstanding estate planning strategies, causing panic among international families, many of whom had significant non-UK holdings.
Moreover, there was concern about the unintended consequences of the change.
Business owners who previously relied on Business Property Relief (BPR) and Agricultural Property Relief (APR) to manage inheritance costs on company shares or farmlands discovered that significant assets could now be taxed at 20% if they exceeded £1 million.
Are Wealthy Individuals Really Leaving the UK?
In the weeks following the tax changes, several high-profile departures were widely reported. Lakshmi Mittal, the steel magnate, and Nassef Sawiris, Egypt’s wealthiest individual, are both said to have either left or announced plans to leave the UK due to the new tax regime.
These departures were accompanied by reports of an “exodus” of non-doms, sparking fears in the City of London that the policy could undermine the UK’s position as a global financial hub.
However, not everyone is convinced of the scale of the exodus. The Tax Justice Network dismissed many of the claims, arguing they were largely anecdotal and politically motivated.
CEO Alex Cobham remarked that previous fears of mass millionaire migration were unsubstantiated and driven by those seeking to protect tax privileges.
Nonetheless, the OBR incorporated an estimated 12%–25% non-dom departure rate into its financial models, acknowledging that at least some behavioural response was expected.
Is Rachel Reeves Now Softening Her Stance?
Facing mounting pressure, Chancellor Reeves appears to be reconsidering key elements of the reform.
Reports from the Financial Times and The Guardian suggest that the Treasury is actively reviewing the policy and is particularly focused on whether taxing worldwide assets at 40% remains sustainable and competitive.
Government sources have revealed that the inheritance tax provision is causing “the most heartburn” among affected individuals and advisors. Reeves has not formally announced a U-turn, but discussions suggest the Government is exploring how to “backtrack without backtracking.”
This means the core policy of non-dom abolition would stay in place, but modifications or transitional arrangements, particularly for trusts and business assets, may be introduced to mitigate damage.
How Is the Treasury Responding to the City and Global Investors?
Senior figures within government have confirmed that feedback from the City of London, foreign investors, and industry leaders is shaping current discussions.
Advisors such as Varun Chandra (No. 10 Business Adviser) and Jonathan Reynolds (Business Secretary) have reportedly been relaying concerns directly to the Treasury.
Additionally, Alastair King, Lord Mayor of London, has warned that the combination of changes including the end of non-dom status, revisions to inheritance tax, and the removal of VAT exemptions on private school fees, is causing economic disruption, not just among billionaires but across the financial services ecosystem.
The Treasury’s official position is that it will continue to work with stakeholders to ensure the UK remains an attractive destination for international investment and talent. But striking this balance remains politically and economically complex.
What Are the Political Risks of Reversing the Policy?
While the economic rationale for reviewing the reforms is gaining traction, the political cost could be significant.
The crackdown on non-doms is one of Labour’s most publicly supported measures, and any backpedalling may undermine the party’s stance on fairness and economic justice.
Rachel Reeves has already had to U-turn on Winter Fuel Payments for pensioners and is leading the effort to reduce sickness and disability benefits by £5 billion. Reversing a popular tax reform targeting the ultra-wealthy could be seen as politically tone-deaf.
A Labour adviser candidly stated, “We won’t do it, the politics are dreadful.” Yet, pressure is mounting from within the government and the business community to moderate the impact.
How Do the UK’s Inheritance Tax Rules Compare Internationally?
To fully understand the competitiveness of the UK’s position, it’s helpful to compare its inheritance tax system with those of other countries:
| Country | Inheritance Tax Rate | Global Asset Coverage | Offshore Trust Protection |
| UK (2025) | 40% above £325,000 | Yes (post-April 2025) | No |
| USA | 18%–40% (Federal) | Yes | Limited |
| Italy | 4%–8% | Yes | Yes |
| Switzerland | Varies by canton | Often No | Yes |
| UAE | 0% | No | N/A |
With such high rates and a broad tax base, the UK now has one of the most aggressive inheritance tax regimes among major economies, especially for globally mobile individuals.
What Should Non-Doms and UK Investors Do Moving Forward?
Given the current policy uncertainty, tax advisors urge affected individuals to prepare for both outcomes: full implementation or strategic moderation.
Advisors recommend the following:
- Conduct a comprehensive review of global asset portfolios
- Reassess the use of trust structures and identify alternatives
- Explore residency-based planning opportunities
- Monitor the Autumn Budget 2025 closely for updates
With no guarantees yet of a policy shift, taking precautionary legal and financial steps is critical to preserving wealth and compliance.
Conclusion: Will Reeves Stick or Shift on Non-Dom Inheritance Tax?
Rachel Reeves faces a delicate balancing act. The need to maintain political credibility and public support sits uneasily alongside the demand to keep the UK open for global business.
Whether the Government opts for tweaks, transitional reliefs, or maintains its current stance, one thing is clear: the UK’s non-dom regime will never look the same again.
The next few months, leading up to the Autumn Budget, will be pivotal in defining how the UK navigates its post-Brexit, post-pandemic future and how it positions itself as a competitive and fair economy in an increasingly globalised world.
Frequently Asked Questions
How do the new UK inheritance tax rules affect foreign income?
Under the revised rules, inheritance tax applies not only to UK-based assets but also to foreign assets held by UK residents, closing the remittance loophole.
What is the timeline for implementing these reforms?
Key changes came into force in April 2025, with additional reforms (such as to business relief) set for April 2026.
Can offshore trusts still protect assets from UK inheritance tax?
No. The reforms eliminated the protection offshore trusts once offered, making foreign assets held in these structures taxable.
Why did the government target non-dom status in the first place?
The non-dom regime was criticised for allowing ultra-wealthy individuals to avoid fair taxation while enjoying UK residency benefits.
Is the inheritance tax change final or subject to revision?
Though the rules are in effect, the Treasury is reviewing them, and future changes may be introduced in the Autumn Budget 2025.
What are the broader economic impacts of the reform?
There are fears of capital flight, reduced investment, and an exodus of business owners and high-net-worth individuals.
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