What Labour’s tax-raising Budget means for wealthy families in the UK

Some commentators believe the changing of nom-dom rules could lead to an exodus of affluent families from the UK.

The Labour government’s much anticipated first Budget has ruffled a few feathers, with concerns looming over the UK ecosystem as a successful hub for entrepreneurs and their families, according to experts.

The main change for these highly mobile global families has been the much-anticipated scraping of the ‘non-dom’ tax status, replaced with a new residence-based regime.

Newcomers who have maintained non-UK residency for at least the past decade will enjoy complete tax relief on foreign income and gains (FIG) accrued over their initial four tax years in the UK.

Although this came as no surprise, concern still looms in the wealth management community. “The UK's rules are very good for incoming foreign nationals for the first four years,” says Peter Ferrigno, director of tax at Henley & Partners, which advises wealthy clients about citizenship and passport issues. “The issue is that after four years, they hit a cliff edge and are taxed on everything.”

This will suit cross-border companies that rotate employees on a traditional international assignment model. The model will be beneficial for foreign investors, but less useful for those who want to stay longer, says Mr Ferrigno.

According to the government, their new tax regime will be “internationally competitive”.  But questions remain about whether these changes will spur an exodus from the UK.

The country is more likely to experience a “gradual outflow, perhaps more than a trickle but less than a flood”, believes Arnab Das, global economic counsellor and global macro strategist, Invesco

“This is not unlike previous measures to tighten the non-dom regime over the years since the financial crisis,” he says. “Many of the very well-off but less than super-rich are probably pretty well stuck into the UK for schooling, culture and work. There seems likely to be an element of levelling down, rather than levelling up, in this segment.”

Other experts paint a starker picture. “It is not welcoming news to wealthy families. They are wary of the Labour government's policies, which tend to raise taxes,” says Xuxin Mao, head of research at the Bank of China in London. “The change of non-dom policies sends a strong signal to affluent families, who may quit the country if the government increases taxes on them,” he warns.

However, wealthy families currently in the UK may think again about relocating, as they can find it more challenging to transfer their wealth to another country, says Mr Mao. For example, some 65,000 high-income households in France could face a new “exceptional” tax. There is also political uncertainty in the US, with the election cycle gearing to a climax.

But keeping plans to bring existing “excluded property trusts” into the scope of inheritance tax may have come as more of a surprise. “With the government having hinted at transitional provisions for existing arrangements, many had been hoping their trusts set up under the old regime would remain protected. This isn’t the case which – despite some concessions – will have a significant impact,” says Iain Tait, head of the private investment office at London & Capital.

Mr Tait believes wealthy clients will be more welcoming of the proposed extension of the

Temporary Repatriation Facility (TRF) to three years, representing an “attractive opportunity” to remit foreign income and gains that arose before April 6 2025.

“Those potentially moving to the UK temporarily had been understandably nervous of a potential 10-year inheritance tax tail on leaving,” he says. “The initial proposal has been softened somewhat, which will be well received.”

Macro outlook

Most experts have labelled the chancellor’s Budget “expansionary”, with new taxes set to raise £40bn ($52bn).

Labour’s Budget seems reminiscent of old-school Labour policies, expanding the state’s role in the economy with increased taxes on non-doms and businesses, alongside boosted public spending and investment. While it emphasises regulation, the Budget notably lacks the productivity-boosting reforms Labour has frequently advocated, according to Invesco’s Mr Das.

“The Budget seems to avoid the reality that many entrepreneurs and business or finance leaders drive growth and innovation to build personal, family and generational wealth,” he says. “Labour seems not to be instilling the incentives that its goals of higher investment and productivity would call for.”

Political stability is necessary but not sufficient – better policies are essential, he adds. “Having lost or at least undercut Britain’s role in trade and intermediation in finance and with the EU and eurozone single market, policy measures needed to be taken to make the economy that much more competitive and attractive as an investment destination,” he says.

For most firms, investors and employees, that would mean lower taxes, lower regulation and greater ease of doing business and finance in other ways to offset impact of greater regulation of UK-EU trading relations.

“The signals from both the UK and EU do not suggest any major improvement since both sides have internal political reasons to avoid the single market or customs union,” says Mr Das.