The UK government is set to abolish the “non-domicile” (non-dom) tax status, affecting approximately 68,000 ultra-wealthy foreign residents. This significant change, announced by Chancellor Jeremy Hunt in the Spring Budget on March 6, aims to generate an additional £9 billion (S$15.4 billion) in revenue. This boost is intended to help finance a reduction in national insurance by two pence.
The non-dom status has traditionally allowed wealthy foreign residents to enjoy tax-free earnings on income and capital gains outside the UK. Many of these residents live in the UK but maintain their domicile in their home countries, planning to return eventually. This tax status has made the UK an attractive international tax haven for the super-rich.
However, the elimination of this tax advantage has sparked concerns among real estate agents and entrepreneurs about a potential exodus of overseas investors. The change is expected to negatively affect London’s appeal as a global financial hub and its property market. Real estate agency Winkworth has highlighted the possibility that many non-doms might relocate their bases and businesses to other attractive destinations like Dubai, thus reducing the inflow of wealth and spending in the UK.
This reform comes at a time when London’s prime property market is already facing challenges from Brexit, high-interest rates, political instability, anti-money laundering measures, and sanctions against wealthy Russians. Consequently, property prices in upscale London areas such as Belgravia, Mayfair, and Kensington saw a significant decline of 7.1 percent in January 2024 compared to the previous year, marking the most considerable drop in nearly five years.
Richard Godmon, a tax partner at Menzies, warned that the financial services sector might lose professionals to other countries, exacerbating the competition for global talent. The non-dom status has been a compelling reason for many to work in the UK, and its removal could weaken London’s competitive edge.
On a more optimistic note, real estate agents at Knight Frank believe the new tax rules will be implemented in stages, which could moderate the impact. They note that non-doms will benefit from a reduced 12 percent tax rate in 2025 and 2026 if they declare their global assets and income. This transition is expected to contribute an additional £15 billion in foreign income and gains, raising £1 billion in tax revenue, potentially bolstering UK property prices.
Furthermore, the latest budget has reduced capital gains tax by four percentage points to 24 percent. This reduction is seen as a benefit for landlords looking to sell their properties, according to Knight Frank.
Overall, while the abolition of the non-dom tax status aims to simplify and modernize the UK’s tax system, it raises significant concerns about its impact on the attractiveness of the UK as a destination for global wealth and investment.
