Chancellor Rachel Reeves is facing mounting scrutiny over the UK’s economic difficulties.
Much of the criticism is directed at the changes she announced in the Budget and those set to take effect from April 2025, particularly concerning the non-domicile tax regime, National Insurance and private-equity taxation.
However, it is overly simplistic to lay all the economic woes at Reeves’ feet. The Labour government has only been in power for around six months, and most people recognise that turning an economy around is not a straightforward task.
The economic difficulties we face today were well underway before this administration took office, and the previous Conservative government must take responsibility for their role in the current situation.
The economic difficulties we face today were well underway before this administration took office
That said, there has been significant discussion about high-net-worth individuals (HNWIs) leaving, or planning to leave, the UK to escape the proposed changes to UK taxation — particularly the overhaul of the non-domicile rules.
As a leading practitioner in the private-client space, I can categorically confirm that this trend is very real. There has been a substantial increase in individuals seeking to explore their options for relocation, unlike anything I have seen before.
The government could have certainly benefited from listening to stakeholders and practitioners. As someone who has contributed to discussions on domicile rules and engaged with policymakers, it is disappointing to observe that our input appears to have been overlooked.
Despite this, I remain pragmatic – as I believe Reeves is too. With growing evidence of an exodus of HNWIs, the Treasury may take a more measured and practical approach to these proposed changes.
The global competition for attracting HNWIs and their families has intensified significantly. Gone are the days when tax-efficient jurisdictions were limited to remote islands or prohibitively expensive destinations unsuitable for families.
Today, countries across Europe — such as Italy, Greece and Portugal — as well as Middle Eastern hubs like Dubai, Abu Dhabi and Qatar, are actively courting wealthy individuals with attractive incentives. The COVID-19 pandemic has also reshaped working and living patterns, making relocation easier and more seamless than ever before.
While it is understandable that the government needs to raise revenue, it is undeniable that they inherited a difficult economic situation. The previous administration failed to address many challenges and often shifted public discourse to obscure the reality of what the state can afford.
The COVID-19 pandemic has also reshaped working and living patterns, making relocation easier and more seamless
There is no doubt that tax reform is necessary and the non-domicile regime, in particular, has seen constant tinkering — often in response to populist demands.
The previous government’s attempt to amend the regime seemed primarily aimed at mitigating electoral losses rather than presenting a well-thought-out plan. In turn, Labour’s response has been to push even harder and faster.
Given the complexities surrounding the regime, my suggestion to the chancellor would be as follows:
- Abolish the current non-domicile regime. It has evolved in an inefficient and piecemeal fashion.
- Grandfather existing structures. Those who have planned their affairs based on existing rules should not be penalised. It would be unfair and contrary to the principles of avoiding retrospective legislation.
- Introduce a forward-looking and competitive regime. One that encourages HNWIs to remain and invest in the UK over the long term. The regime should provide incentives for at least 15 years, allowing families to plan for education and lifestyle, and include clear pathways for transition for those who wish to make the UK their permanent home.
There has been no shortage of ideas presented to the Treasury, and advisers remain willing to provide further insights.
Another critical area where the government must tread carefully is the taxation of private equity. The current messaging suggests that investing in the UK is becoming less attractive.
With Donald Trump taking the US presidency and America’s economy attracting unprecedented levels of global capital, any adverse changes to the UK regime could create a significant competitive disadvantage. I am already aware of private-equity firms and executives considering relocation.
With America’s economy attracting unprecedented levels of global capital, any adverse changes to the UK regime could create a significant competitive disadvantage
Aligning private-equity returns with income-tax treatment could also discourage long-term investment and incentivise short-term gains, potentially leading to unstable businesses focused on rapid exits rather than sustained growth.
Despite the challenges, I believe Reeves is pragmatic and I hope will heed the concerns raised by those working closely with HNWIs and private-equity clients. Blaming the government for the current economic difficulties is both excessive and simplistic.
However, a pragmatic government should be open to revisiting and refining their proposals in light of emerging evidence and the realities of the global economic landscape. The limited fiscal headroom inherited from the previous administration means they cannot afford to get this wrong.
Majid Hussain is head of private client at HaysMac
Comments