Proposed tax changes in Britain are causing ultra-wealthy individuals to consider leaving en masse.

• The potential departure of the ultra wealthy from the U.K. could result from Labour's plans to eliminate the non-dom tax system, as advised by experts and research organizations.
• Wealthy investors are "smelling the fear" and have identified Switzerland, Monaco, Italy, Greece, Malta, Dubai, and the Caribbean as top relocation destinations.
• The super-prime real estate market in London is experiencing a decline in transactions, but this presents potential opportunities for wealthy U.S. buyers, as per Knight Frank.

The U.K.'s wealthy individuals are being targeted by destinations such as Monaco, Italy, Switzerland, and Dubai, who are trying to attract them away from the country ahead of changes to the non-dom tax regime.

A recent study by Oxford Economics reveals that almost two-thirds (63%) of wealthy investors plan to leave the U.K. within two years or "shortly" if the Labour government moves ahead with plans to abolish the colonial-era tax concession, while 67% said they would not have emigrated to Britain in the first place.

The non-dom regime in the U.K. is a 200-year-old tax rule that allows individuals residing in the U.K. but domiciled elsewhere to avoid paying tax on foreign income and capital gains for up to 15 years. As of 2023, approximately 74,000 people have benefited from this status, an increase from the previous year's 68,900.

The Labour government recently announced plans to abolish the status, fulfilling a promise made in their election manifesto and building on earlier proposals by the previous Conservative administration to phase out the system gradually. This move comes as Prime Minister Keir Starmer has pledged to enhance fairness and bolster the public finances, with additional statements anticipated in the Oct. 30 Autumn budget announcement.

Rachel Reeves, the Finance Minister, stated that canceling the program could result in £2.6 billion ($3.45 billion) in savings over the next government's term. However, a recent study by Oxford Economics, conducted in collaboration with the Foreign Investors for Britain lobby group, suggests that the changes will actually cost taxpayers £1 billion by 2029/30.

"Macleod-Miller, CEO of Foreign Investors for Britain, warned CNBC over the phone that this is a dangerous time and if the government doesn't take action, it will put at risk revenues for future generations."

The U.K. will eliminate the concept of "domicile" and replace it with a resident-based system, and the number of years in which money earned abroad goes untaxed will be reduced from 15 to four under the proposals.

After 10 years of U.K. residency, individuals will have to pay inheritance tax on their assets and remain liable for 10 years after leaving the country. Additionally, they will not be able to avoid inheritance tax on assets held in trust.

Macleod-Miller, a private wealth practitioner who founded the lobby group, stated that the proposed changes would hinder wealth creation and advocated for a tiered tax system.

The Oxford Economics research found that 98% of 72 non-doms surveyed, representing 952 non-dom clients, would emigrate from the U.K. sooner than planned if the reforms were implemented. These 72 non-doms had invested £118 million each into the U.K. economy.

A majority of respondents (83%) cited inheritance tax on their worldwide assets as their primary reason for leaving, while 65% also mentioned changes to income and capital gains tax.

Where the wealthy are moving

As other countries are revising their tax systems to attract affluent investors.

Wealthy investors are most attracted to destinations such as Switzerland, Monaco, Italy, Greece, Malta, Dubai, and the Bahamas, according to industry experts and agents CNBC spoke to.

Christie's International Real Estate's managing director and head of EMEA and APAC, Helena Moyas de Forton, stated that wealthy investors now have numerous options and many locations are competing for their business.

Moyas de Forton, a consultant on international relocation, stated that Labour's plans represent the latest in a series of political developments that have undermined the U.K.'s reputation as a safe haven in recent years.

"She remarked that it's just another hit, and they're questioning and taking their time to see what's changing, unsure if everyone is leaving."

According to a June report from migration consultancy Henley & Partners, a record number of millionaires are expected to leave the U.K. this year due to post-Brexit political flux, with an estimated net loss of 9,500 high-net-worth individuals in 2024, more than double last year's 4,200.

Marcus Meijer, CEO of real estate investor Mark, stated on CNBC's "Squawk Box Europe" that the non-dom changes last week from Monaco have made it easy for people to move both their homes and businesses.

The wealthy have the option of indefinite inheritance tax exemptions in Monaco, Malta and Gibraltar, as well as an absence of income, capital gains and inheritance tax in Dubai. In Italy and Greece, flat tax regimes allow the wealthy to avoid paying tax on their worldwide assets for an annual fee of 100,000 euros for up to 15 years.

The Italian government recently increased its fee for new arrivals to 200,000 euros ($223,283) in an effort to avoid "fiscal favors" for the wealthy. Despite the increase, Macleod-Miller believes the regime will still be attractive to the top 1% at a slightly higher rate.

Macleod-Miller stated that other countries are capitalizing on the fear and actively marketing their jurisdictions to attract investment and families.

He remarked that Italy is targeting the wealthy and believes that by treating them well, they will contribute.

UK prime real estate faces a hit

The U.K.'s prime real estate market is being impacted by the election of Labour in July. Now, around 30% to 40% of clients are lowering their asking prices to generate a quicker sale, according to James Myers, director at London-based luxury real estate agency Oliver James.

Myers informed CNBC over the phone that many people are concerned and prefer to leave before it's too late. He stated that his multimillionaire and multibillionaire clients have already established residency in Monaco and Dubai, with Italy gaining popularity more recently.

The number of transactions in London's high-end residential market, which includes homes valued at £10 million and above, decreased by 22% in the year to July compared to the previous 12 months, according to data from property agency Knight Frank.

The decline in sales was most significant for properties valued over £30 million, with only 10 sales compared to 38 the previous year, according to the report, which attributed the decline to increased buyer discretion.

Autumn Statement uncertainty has replaced election uncertainty, and non-doms are not the only group being spooked by Labour's anticipated tax changes, according to Stuart Bailey, Knight Frank's head of super-prime sales for London.

Private schools in the U.K. are facing VAT charges, and ultra-wealthy citizens who are active in the super-prime market are adopting a "wait and see" approach regarding possible changes to capital gains and inheritance tax.

Bailey stated over the phone that non-doms are a part of the super-prime market, but they are not the only option.

Bailey pointed out that reduced competition could ultimately benefit U.S. citizens and 90 dayers, who are already subject to U.S. tax on their worldwide assets and have an annual stay in the U.K. below the tax threshold.

It would be irrational for U.S. buyers, particularly those with a substantial amount of cash, not to take advantage of the current market and purchase.