What happens when a government seeks to modernise its tax policy while preserving its reputation as a global financial hub? That’s the question currently facing Chancellor Rachel Reeves and the Labour government as they confront the complexities of non-domiciled (non-dom) tax status reforms, particularly concerning inheritance tax.
As of April 2025, the Labour government introduced sweeping changes to the way non-doms are taxed on inherited wealth. These reforms were expected to deliver increased revenue and eliminate longstanding tax loopholes. However, the backlash from wealthy individuals, financial institutions, and international investors has been swift and significant.
The government now appears to be re-evaluating elements of its flagship policy. Amid warnings of an investor exodus and capital flight, and lobbying from City of London elites, Reeves is reportedly considering whether some adjustments are necessary to balance fairness with competitiveness.
This blog explores what’s changing, who it affects, and what could happen next in this unfolding political and economic story.
What Are the Inheritance Tax Rules for Non-Domiciled Individuals in the UK?
Inheritance tax (IHT) in the UK is typically charged at 40% on the value of a deceased person’s estate above the nil-rate band, currently £325,000. For UK-domiciled individuals, this charge applies to their entire global estate. Non-doms, however, have historically enjoyed a more favourable regime.
Before April 2025, non-doms were only subject to UK inheritance tax on UK-based assets. Overseas wealth, even when significant, was generally excluded, especially when placed in offshore trusts. This exemption made the UK a particularly attractive base for internationally mobile high-net-worth individuals.
The situation changed dramatically with Labour’s announcement in the October 2024 Budget, which confirmed the abolition of the non-dom tax status and the closure of various tax avoidance mechanisms, including offshore trusts.
Why Did Rachel Reeves Abolish the Non-Dom Regime?
The rationale behind Reeves’ decision was rooted in the desire to create a fairer and more transparent tax system.
Labour had campaigned on the promise of closing tax loopholes and making the wealthiest contribute their fair share. At the time of the Budget announcement, Reeves stated:
“Those who make the UK their home should pay their taxes here.”
This was not an isolated initiative. The previous Conservative Chancellor, Jeremy Hunt, had already signalled the end of the non-dom status.
Reeves’ policy went further, not only abolishing the regime but also applying UK inheritance tax to worldwide assets of all UK residents, including former non-doms regardless of the structure in which those assets were held.
Estimates from the Office for Budget Responsibility (OBR) suggested these changes could raise £12.7 billion over five years, with part of the revenue expected from the closure of trust-related tax avoidance strategies.
Why Are These Reforms Now Under Review?
Despite the government’s strong initial stance, mounting pressure from the City of London, legal professionals, and international investors has led to a reconsideration.
Multiple sources confirm that the Treasury is reviewing parts of the inheritance tax regime, especially the treatment of offshore assets and trusts.
The review follows a growing chorus of complaints from financial elites and advisors who argue that the changes could severely damage Britain’s status as a global financial centre. One senior official told the Financial Times that worldwide asset exposure is the part of the reform that is “causing most heartburn.”
Indeed, the government made minor tweaks to transitional provisions during the Davos summit in January 2025, reflecting some willingness to adjust the timeline or implementation mechanism.
Is the UK Facing a Non-Dom Exodus?
There have been persistent reports of an “exodus” of wealthy individuals from the UK following the reform, although these claims are not without dispute.
According to media investigations and financial sources, high-profile figures such as Lakshmi Mittal and Nassef Sawiris are among those who have either left or are planning to leave the UK.
Other wealthy individuals have begun moving their primary residence or restructuring their asset portfolios in favour of more favourable jurisdictions such as Switzerland, the UAE, and Italy.
This perceived flight has triggered deep concern within the financial services industry.
Brokers and financiers suggest that while billionaires attract the headlines, the changes have caused distress for many in the financial sector, including City professionals and asset managers who fall below the billionaire threshold.
However, organisations like the Tax Justice Network have questioned the validity of these claims. Their Chief Executive, Alex Cobham, commented:
“It’s almost as if the lobbyists for not taxing extreme wealth don’t actually care about the evidence. We’ve just laid bare the nonsense of one claimed millionaire exodus and now there’s another.”
Nevertheless, the OBR has factored in a 12–25% outflow of non-doms into its financial projections, indicating that at least some behavioural change is anticipated by the Treasury.
What Are the Specific Inheritance Tax Changes Causing Concern?
The most controversial aspect of the new regime is the 40% inheritance tax on global assets of UK residents, including non-doms, regardless of whether these assets are held in offshore trusts. This marks a fundamental shift from the historical precedent and has complicated estate planning for many.
Here’s a comparison of the previous system and the post-reform system:
| Feature | Previous Non-Dom Regime | Post-April 2025 Regime |
| Inheritance Tax on Foreign Assets | Exempt (if non-dom and structured properly) | Subject to 40% IHT |
| Use of Offshore Trusts | Often excluded from IHT | Now fully exposed to IHT |
| Domicile Status | Flexible, based on origin and intent | Standardised: global assets taxed if UK-resident |
| Transition Period | Allowed extensive preparation | Minor transitional relief announced |
Sources close to the Treasury acknowledge that this change is the “primary pain point” for wealthy individuals and their advisors.
Is the Government Planning to Backtrack?
While no formal reversal has been announced, multiple insiders report that adjustments are being seriously considered. The Treasury is said to be assessing whether current rules are harming Britain’s international competitiveness.
One senior financier told the Financial Times that the government is trying to find a way of “backtracking without backtracking”, likely by refining the rules around trusts or asset residency.
The Chancellor is reportedly “listening” to City representatives. Allies like Varun Chandra, the Number 10 business adviser, and Jonathan Reynolds, Business Secretary, are regularly engaged in dialogue with international investors.
The Lord Mayor of London, Alastair King, has also been lobbying the Treasury to reconsider aspects of the reform.
However, there are political risks. Retreating on non-dom reforms could appear inconsistent, especially after Labour’s high-profile U-turn on Winter Fuel Payments and during a period of ongoing benefit reforms.
Some within Labour argue that the crackdown is “one of our most popular policies”, and Reeves must tread carefully.
How Do These Changes Affect Business Owners and Entrepreneurs?
The reforms also extended to business property relief and agricultural property relief, which previously allowed business owners and farmers to pass on assets tax-free.
From April 2026, assets valued above £1 million that previously qualified for full relief will be subject to a 20% inheritance tax. This has raised alarms among business groups and estate planners.
Ceri Vokes, co-head of private client and tax at Withers, expressed concerns:
“By forcing people to leave the UK, you don’t get 20% of the value of their business you get 0%.”
She and other advisors are calling for these reforms to be reversed or modified to prevent further harm to domestic enterprises and family-owned businesses.
How Does the UK Compare to Other Countries on Inheritance Tax?
A comparative look at global tax regimes shows that the UK’s post-2025 model is now more aligned with global norms, though it remains relatively aggressive in applying IHT to global assets:
| Country | Inheritance Tax Rate | Global Asset Taxation | Special Provisions for Non-Doms |
| United Kingdom | 40% | Yes | No |
| United States | Up to 40% | Yes | No |
| Germany | 7% – 50% | Yes | Some treaties apply |
| France | Up to 45% | Yes | Limited reliefs |
| Italy | 4% – 8% | Yes | Exemptions for close relatives |
| Switzerland | Varies by canton | Sometimes | More favourable for residents |
While these comparisons offer perspective, critics argue that the UK’s abrupt implementation, especially during a period of economic uncertainty, may deter long-term investment.
What Should High-Net-Worth Individuals and Advisors Do Now?
Given the shifting landscape, individuals who are either affected or potentially affected should act now to review their financial strategies. Legal and financial advisors are recommending a reassessment of wills, trust structures, and domicile planning.
It is also advisable to monitor announcements leading up to the Autumn 2025 Budget, which is widely expected to bring clarity or further changes.
Frequently Asked Questions (FAQs)
What has changed in the UK’s inheritance tax regime for non-doms?
From April 2025, non-doms are now subject to 40% inheritance tax on their worldwide assets, regardless of whether the assets are held in offshore trusts.
Is the government planning to reverse the non-dom reforms?
The Treasury is reviewing aspects of the inheritance tax reform, particularly the treatment of trusts, in response to lobbying and investor concern.
Are wealthy individuals leaving the UK because of these tax changes?
There have been notable departures, but the scale of this movement is debated. The OBR anticipates a partial outflow of non-doms due to the new tax structure.
What are the political implications of modifying the non-dom policy?
Any retreat could appear politically inconsistent and may weaken public trust in Labour’s tax agenda. However, the government must also consider economic competitiveness.
How are businesses affected by the changes to inheritance tax?
Business property and agricultural relief have been capped, introducing a 20% tax on assets above £1 million from 2026. This is expected to affect family businesses and estate owners.
What should non-doms do in light of these changes?
They should seek legal and financial advice immediately to restructure estates, review domicile status, and prepare for additional liabilities.
When will the next update on these reforms be announced?
The Autumn 2025 Budget is expected to provide further clarification or adjustments to the current regime.
