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‘Get out of Britain while you still can’, rich told

Rachel Reeves
Rachel Reeves said that her party will close a loophole that gives non-doms a year to put overseas funds into a trust - Dan Kitwood/Getty Images Europe

Wealthy foreigners are being told to “get out while they still can” after Labour announced plans to toughen up a Tory crackdown on non-doms.

Labour is attempting to plug a funding gap ahead of the general election after Jeremy Hunt’s decision to abolish non-dom status in the Budget last month, effectively spending the money Labour had earmarked for health and education policies.

Rachel Reeves, the shadow chancellor, said the party will close a loophole that gives non-doms – who live in Britain but avoid paying UK tax on money they make overseas – until April next year to put overseas funds into a trust.

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These funds will be exempt from inheritance tax under government plans. Labour said it would raise £430m a year by removing the exemption.

However, high-end tax and wealth advisers warned the raid will be “devastating” for rich foreigners, forcing them to flee abroad and take their wealth with them.

Jon Elphick, international tax adviser at Mark Davies & Associates, said Labour’s plans would be a “dealbreaker” for non-doms considering leaving Britain.

He added: “Tax perks [for wealthy foreign clients] have been eroded over 10 or 20 years. The latest measures are devastating for these people, it’s a fundamental change.

“This will be a dealmaker for moving abroad, especially ultra-high net worth clients who would be paying a lot of tax. There’s now a big risk they relocate.”

Three in 10 people who earn £5m or more claim non-dom status, compared with fewer than three in 1,000 among those earning less than £100,000.

The Office for Budget Responsibility, the official forecaster, expects 10pc to 20pc of non-doms to leave the UK because of the tax raid, but in reality that figure could be even higher.

Mr Elphick added: “One Israeli client last week said they had had enough of how the tax system had changed and as a result will move, probably to Monaco, Switzerland or Dubai.

“This is someone who pays £13m of income tax and capital gains tax a year in Britain and they’ve done this for 15 years.”

Unlike UK-domiciled residents, individuals who live in Britain but have a permanent home elsewhere can avoid paying tax on foreign income and gains.

But from April 2025, new arrivals into the country will benefit from this tax break for just four years before they must pay the same taxes as UK domiciles.

Others already based here will face huge tax rises as soon as the new regime comes into effect.

An estimated 5,500 current non-doms are ineligible for the four-year tax break, according to government figures, and will instantly face tax rises when the rules change next year.

Simon Goldring, of Excello Law, said: “My clients are not happy. You’re faced with a stark choice: stay in the UK and get taxed, or leave. Some are having their financial structure totally destroyed. It’s a case of get out while you still can.”

Christopher Groves, a partner at high-end international law firm Withers, said: “I think it’s a terrible plan. There’s a lot of anti-foreigner rhetoric because we don’t want immigration, but many other countries are attracting wealth. They don’t take away 40pc of your assets on death. Clients will simply go there.”

“The problem for Labour is that they need to find more money and are being more draconian than they otherwise would have been, if Jeremy Hunt hadn’t abolished non-dom status in his Budget.

“But to not expect a response is naive. Non-doms are feeling victimised. They think ‘there are a lot of other countries that want to attract me, whereas the UK seems to be more interested in creating uncertainty about my position and squeezing me until the pips squeak.

“The damage is that it creates a regime where you can come for four years to pay no tax, and then disappear after, say, selling a business. [The country] makes the most money for people staying the longest time.”

Labour has dismissed claims that non-doms would leave the country because of its planned rule changes, while the Government has said its changes to the non-dom regime would make for a “simpler and fairer residency-based system”.