Chancellor Rachel Reeves is reportedly weighing a softening of recent inheritance tax reforms, following mounting pressure from wealthy individuals and financial sector lobbyists concerned about the impact of abolishing the UK’s controversial non-domiciled (“non-dom”) tax status.

In a major overhaul unveiled in her autumn budget, Reeves pledged to end the long-standing non-dom regime, which allowed affluent individuals with overseas ties to avoid full UK taxation on their foreign income. Her message at the time was clear: “Those who make the UK their home should pay their taxes here.”

While the decision followed the direction set by her predecessor Jeremy Hunt, Reeves’s version of the reform was expected to generate an additional £12.7 billion in revenue over five years. However, her proposed rules — particularly those affecting inheritance tax (IHT) on global assets — are now at the center of intense debate.

According to a report in the Financial Times, Reeves is reconsidering changes that took effect in April, which extend the 40% UK inheritance tax to all worldwide assets held by UK residents, even if those assets are placed in trusts. This shift marked a dramatic tightening of tax policy for former non-doms who have chosen to reside permanently in the UK.

The backlash has been swift and vocal, especially from those within the financial sector. Some claim the reforms are prompting wealthy individuals to relocate abroad, potentially undermining the UK’s ability to attract top-tier talent and capital. While reports of a mass exodus remain contested — with the Tax Justice Network questioning the scale of the departure — the Office for Budget Responsibility (OBR) did anticipate that between 12% and 25% of non-doms might leave the UK as a result of the changes.

In response to the mounting pressure, Reeves had already made limited adjustments to transitional arrangements during the Davos summit earlier this year. But further revisions may now be on the table.

A Treasury spokesperson, addressing the speculation, said: “As the chancellor set out at the spring statement, the government will continue to work with stakeholders to ensure the new regime is internationally competitive and continues to focus on attracting the best talent and investment to the UK.”

The potential U-turn comes at a politically sensitive time. While Labour remains committed to cracking down on tax loopholes for the ultra-wealthy, the Treasury is also under pressure to shore up foreign investment and fuel economic recovery. With the autumn budget approaching, Reeves faces the dual challenge of maintaining fiscal discipline while keeping the UK attractive to global investors.

At the same time, forecasts from the OBR may dampen optimism, as it prepares to reassess its earlier projections on productivity and growth. Any downgrade in these figures would leave Reeves with even less fiscal headroom — and further complicate the balancing act between tax fairness and economic competitiveness.