Non-dom ‘brain drain’ could impact UK’s tech and financial services sectors, warns leading law firm - Spear's

Non-dom ‘brain drain’ could impact UK’s tech and financial services sectors, warns leading law firm – Spear’s

Posted by author October 5, 2024 Tech

The non-dom regime has played a crucial role in attracting global talent to the UK’s tech and financial services sectors, particularly in London / Image: Shutterstock

Upcoming changes to the UK non-dom system could lead to a ‘brain-drain’ in the tech and financial services sectors, new research has suggested.

A study by international law firm Pinsent Masons warned highly skilled individuals could choose to relocate to other European financial hubs such as Paris, Milan, or Frankfurt as the Labour government gears up to crackdown on non-doms.

Non-doms currently benefit from a system that allows them to avoid paying tax on overseas income and gains for up to 15 years. From April 2025, this will be replaced with the new foreign income and gains (FIG) regime. It is expected the new regime will only allow international UHNWs to avoid additional UK taxes on their foreign income for four years.

Many non-doms from Hong Kong, Singapore, the UAE, and Qatar — who would benefit from little to no tax on income or capital gains in their home countries — could face significant tax increases under the new UK rules.

The non-dom regime has played a crucial role in attracting global talent to the UK’s tech and financial services sectors, particularly in London, the report highlighted. Many non-doms from the US are employed in these high-paying industries, which have long relied on drawing talent from across the globe.

A recent study by Oxford Economics found nearly two-thirds of non-doms are planning to leave the UK within the next two years.

Amy Roe, Associate at Pinsent Masons, said: ‘UK non-doms from jurisdictions like Hong Kong, Qatar, and the UAE are also likely to see their tax bills rise sharply under the new system. There will likely be assets that would normally go untaxed in their home countries that will now be taxed in the UK.’

Chinese nationals make up the largest group of non-doms in the UK, with 17,100 individuals, closely followed by Americans at 17,000, and Australians at 13,060, according to research by international law firm Pinsent Masons.

‘Many of them are open-minded about where their European base is. If they think that it makes more sense for them to take a role in Paris, Milan, Zurich or Frankfurt, then they will,’ Roe said.

Exodus of non-doms already underway

Even before the official announcement, many non-doms had been preparing for the regime’s potential abolition. Pinsent Masons’ research shows non-doms from France, Australia, and New Zealand were among the highest number of individuals leaving the UK in the year leading up to March 31, 2023, with 340, 560, and 290 departures, respectively.

The government has confirmed a temporary facility will be introduced as part of the new system, allowing a lower tax rate on certain income or gains for a limited period.

However, the details, such as the tax rate and duration, remain unclear and this uncertainty could accelerate the departure of more non-doms in the coming months.

‘There have already been non-doms leaving the UK over the last couple of years—they could see the way things were going long before the government announced anything. This will undoubtedly accelerate now that non-dom status has been scrapped, Roe notes.

Jurisdictions with rising non-dom numbers

Despite the looming changes, some regions have seen an increase in non-dom residents in the UK over the past year. Notably, Hong Kong, China (excluding Hong Kong), Portugal, Saudi Arabia, and the UAE have witnessed a rise in their non-dom populations.

As the UK’s April 2025 deadline approaches, many non-doms are making swift plans to relocate or seek alternative options, further fueling concerns about how these changes could affect the UK’s position as a global hub for talent and investment.