(Bloomberg) -- Days before UK Chancellor Rachel Reeves unveils her attempt to balance the nation’s finances, a group representing the country’s wealthiest foreigners tried once again to make their case to the government as an increasing number of them threaten to leave if they’re forced to pay higher taxes.
Varun Chandra, Prime Minister Keir Starmer’s business adviser, spoke on Thursday with Foreign Investors for Britain, a lobbying group that represents the interests of the UK’s so-called non-doms. The briefing came after the group warned last month that Labour’s proposals for ending some of the preferential tax treatment enjoyed by non-doms wouldn’t raise funds as the government had initially hoped.
At the meeting, FIFB stressed the need for UK inheritance tax protection on assets held in overseas trusts, according to a person familiar with the matter. The group also advocated for the UK to adopt a tiered preferential tax regime, similar to those in other European nations such as Italy, the person said, asking not to be identified discussing non-public information.
While Chandra was open to hearing the group’s ideas and asked for more information about some of their proposals, it’s unlikely that the government will incorporate many aspects of the group’s proposals in the budget on Wednesday, according to a separate person familiar with the matter.
Chandra — who’s known as Starmer’s “business whisperer” — didn’t make any specific policy commitments during the meeting, the people said.
“We are continuing to ring the alarm bell – those with the broadest shoulders have the longest legs,” Leslie MacLeod Miller, chief executive officer of Foreign Investors for Britain, said in an emailed statement. “We need urgently to stem the flow of tax-paying investors to Italy, Switzerland, Dubai, Cyprus and other internationally competitive jurisdictions.”
Chandra declined to comment.
Tax Changes
Non-doms — foreign residents who span City of London bankers to multibillionaires — currently don’t pay UK taxes on their overseas earnings for as long as 15 years. They can initially claim the status without any extra charges but face annual costs of as much as £60,000 ($78,000) if they continue to reside in Britain, where they pay UK taxes on local earnings.
In March, the then-Conservative government said it would require non-doms to pay tax on overseas income after living in the UK for four years instead of the current 15. At the time, such a move was estimated to raise around £3 billion a year.
But Labour wants to go further, pledging ahead of its landslide election victory in July to eliminate inheritance tax breaks on assets that non-doms hold in overseas trusts if they’ve lived in the UK for at least a decade.
That proposal has spooked many non-doms, prompting some of them to finalize or even carry out plans to leave Britain.
The wealth and high profiles of those revealed to have claimed non-dom status — such as the Conservative Party’s onetime deputy chairman, Michael Ashcroft, and the wife of its outgoing leader Rishi Sunak before she revoked it — make it a hot political topic, especially amid economic headwinds.
The number of non-doms had already declined by almost half to 74,000 in the decade before 2023. Still, those who remain or have arrived since then are major investors in the UK economy and they contribute more than £8 billion in taxes a year.
FIFB held an event opposite the Treasury last month to mark the launch of Oxford Economics research that warned Labour’s non-dom reforms may cost £1 billion a year instead of raising funds. Officials from the UK’s tax authority and Treasury attended that event at the London headquarters for the Institution of Mechanical Engineers alongside more than a dozen UK non-doms.
Amid those concerns, Reeves began considering tweaks to her overhaul of the tax regime for non-doms, Bloomberg reported last month.
“Engaging with the investment community is essential to maintaining the UK’s status as a top destination for global investment,” MacLeod Miller said in the statement. “We strongly urge delaying any changes for non-domiciliaries.”
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