Labour’s recent move to scrap the non-domiciled tax status, a long-standing perk for wealthy individuals living in the UK but claiming their permanent home is abroad, was initially hailed as a bold step toward greater tax fairness. Chancellor Rachel Reeves argued that it was only right for the ultra-rich to contribute more to the country where they live, work, and benefit from public services. Early estimates suggested the plan could raise to £2.6 billion over a parliamentary term. But now, that optimism is starting to falter, as concerns grow that the reform may cost the UK money in the long run.
The decision, which came into effect in April 2025, means that long-term UK residents with foreign domicile will now be taxed on their worldwide income, capital gains, and even their inheritance globally. While the intention was to close tax loopholes and create a more level playing field, the fallout has been swift. A significant number of wealthy individuals, many of whom contribute heavily to the economy, are reportedly leaving the country for more tax-friendly nations like Switzerland, Italy, or the UAE. Some firms that advise high-net-worth clients suggest nearly a third of non-doms have already relocated or are planning to do so.
Analysts, including those from Oxford Economics, now warn that this shift could lead to a substantial drop in tax revenue, possibly as much as £1 billion by 2029. That’s a stark contrast to initial forecasts and a troubling signal that the reform may not deliver the financial benefits Labour hoped for. The Office for Budget Responsibility had already flagged the original projections as uncertain, pointing to the unpredictable behavior of those impacted by the changes.
The chancellor is reportedly reviewing aspects of the policy, caught between upholding a commitment to fairness and managing the practical economic impact of losing wealthy taxpayers. Critics like entrepreneur Sir James Dyson have not held back, warning that driving out wealth creators could result in lost investment and jobs across the UK. For now, the government must weigh whether its push for equity might have unintended consequences for the broader economy.
Labour’s attempt to correct what it sees as an unfair system is morally compelling for many. But as the numbers come in, the party may be forced to ask itself if principle alone is enough to justify the potential economic cost.
