Wealthy foreign residents in the U.K., known as "non-doms," are lobbying the government to implement a new tiered tax regime to prevent a potential mass departure as their preferential tax status faces abolition. The proposal comes ahead of an autumn budget in which Finance Minister Rachel Reeves is expected to announce significant tax rises.

The lobby group Foreign Investors for Britain, alongside think tank Oxford Economics, has put forward a "tiered tax regime" (TTR). Under the plan, wealthy foreigners would pay a single annual fee based on their net wealth—ranging from £200,000 for those worth up to £100 million to £2 million for those exceeding £500 million—in exchange for exemption from U.K. inheritance tax on overseas assets and U.K. tax on foreign income and gains for up to 15 years.

The current non-dom rules, a colonial-era policy, allow individuals living in the U.K. but domiciled elsewhere to avoid paying British tax on their overseas income and capital gains for 15 years. An estimated 74,000 people used the status in 2023. The Labour Party, now in government, has pledged to scrap the regime entirely, a move it originally estimated could raise £2.6 billion for the Treasury.

However, research from Oxford Economics warns the abolition could backfire, potentially costing taxpayers £1 billion by 2030. Their survey of 115 non-doms suggests they have invested nearly £8.5 billion in the U.K. economy, with at least £842 million already being divested in anticipation of the rule changes. "If there's no stability, people are making plans now to leave," said Leslie MacLeod Miller, chief executive of Foreign Investors for Britain.

The group is set to meet with government officials on Thursday to discuss the TTR proposal. Dominic Lawrance, a partner at law firm Charles Russell Speechlys who helped draft the plan, said it was an "improvement" on similar flat-tax systems like Italy's because it scales with wealth, generating more revenue and avoiding "any perception of a U-turn."

The government faces a delicate balancing act. While committed to addressing "unfairness" in the tax system, it also recognizes the need to attract global investment. Mayor of London Sadiq Khan emphasized the point, stating, "We need to understand that we need people to be investing here, to create the jobs, wealth, prosperity that we want."

The outcome will be closely watched as a signal of how the new Labour government navigates between its pledge for fiscal equity and the practical demands of fostering economic growth.