UK's ultra-rich non-doms urge Italian-style tax regime to prevent wealth exodus

LONDON — Britain's ultra-rich non-doms are urging the government to introduce an Italian-style flat-tax regime to prevent a wealth exodus, as their preferential status comes under threat in the upcoming budget.

Foreign Investors for Britain, a lobby group comprised of non-doms and their advisers, alongside think tank Oxford Economics have proposed a tiered tax regime (TTR) that would charge wealthy foreigners a single annual fee in exchange for exemption from inheritance tax (IHT) on non-UK assets and U.K. tax on overseas income and gains for up to 15 years.

Such fees would be levied according to an individual's net wealth, with proposed annual charges ranging from £200,000 ($260,447) for those worth up to £100 million, and an annual charge of £2 million for those worth over £500 million.

That differs from Italy's regime, which charges a recently doubled rate of 200,000 euros per year regardless of wealth bracket.

Foreign Investors for Britain is set to meet with government officials on Thursday to discuss the proposals.

"If there's no stability, people are making plans now to leave," Leslie MacLeod Miller, chief executive of Foreign Investors for Britain, told CNBC on Wednesday during an event to announce the proposals.

The U.K.'s non-dom status is a colonial-era tax rule, which permits people living in the U.K. but who are domiciled elsewhere to avoid paying tax on income and capital gains earnings from overseas for up to 15 years. As of 2023, an estimated 74,000 people enjoyed the status, up from 68,900 the previous year.

While the regime has long been politically contentious, it had come under pressure over recent months, after the Labour Party in August announced plans to step up the planned abolition of non-dom status by also banning the use of trusts to shelter overseas assets from IHT.

It comes as Finance Minister Rachel Reeves is expected to announce bumper tax rises at her Oct. 30 budget as she seeks to close a now reported £40 billion funding gap in the public finances. The Treasury did not immediately respond to CNBC's request for comment on the shortfall or on the upcoming talks with FIFB.

Reeves had previously said that scrapping the program could generate £2.6 billion ($3.38 billion) for the Treasury over the course of the next government.

However, Oxford Economics research last month warned that the plans could instead cost taxpayers £1 billion by 2029/30 in direct revenue alone. In all, the 72 non-doms it surveyed were estimated to have invested a total of nearly £8.5 billion into the economy since their arrival in the U.K.

"This is just a fraction of money invested by non-doms, so this investment is at risk," Alex Stewart, associate director at Oxford Economics, said Wednesday.

Indeed, some have already begun making pre-emptive moves.

New research released Wednesday by the economic think tank suggests that non-doms who participated in the survey had already divested at least £842.2 million in anticipation of the changes.

Several non-doms in attendance at the event, but who requested to remain anonymous, said they were considering relocating to jurisdictions such as Italy, Switzerland and Dubai should the more hard-line plans be adopted.

According to Wednesday's research, which surveyed 115 non-doms and 42 advisers, around 1 in 10 (13%) would still move ahead with plans to leave should the TTR be introduced, compared to 98% who said they would leave if the proposed flat-tax regime was not introduced.

"Those with the broadest shoulders often have the longest legs, so it's important that you understand them," MacLeod Miller said.

Dominic Lawrance, a partner at Charles Russell Speechlys, said the plans were an "improvement" on the Italian system in that they would be scalable according to wealth brackets, thereby generating additional tax revenue. Lawrance, who helped draw up the proposals, added that they should be introduced in parallel with existing measures to abolish non-domicile status to "avoid any perception of a U-turn."

Oxford Economics said it was currently working to determine an estimate for how much revenue could be generated from the TTR proposals.

The Labour government has said it is determined to address unfairness in the tax system, pledging in its election manifesto to close non-dom tax loopholes. However, it has since appeared to soften its stance, with Reeves reportedly reconsidering some elements of her non-dom crackdown.

Prime Minister Keir Starmer on Monday sought to promote the U.K. as a hub for growth and wealth creation, as he assembled a group of 300 business leaders at Labour's inaugural International Investment Summit.

The Mayor of London, Sadiq Khan, told CNBC at the event on Monday that the government must tread a fine line to avoid alienating wealth creators while ensuring that they "abide by the rules."

"We need to make sure we understand that we need wealth creators in London and in our country. We need to understand that we need people to be investing here, to create the jobs, wealth, prosperity that we want," Khan said.

"The key mission of this government is growth and we can't get growth without the investment of the people you're talking about. I'm hoping people are reassured by what the prime minister said," he added.

The Lord Mayor of the City of London Corporation, Michael Mainelli, acknowledged on Monday that there was a "problem" with the non-dom rules but noted that the U.K. should continue to have a "competitive tax regime."