Awwal 22, 1432 H/Feb 25, 2011, SPA -- Britain's government is under pressure to levy more tax on the offshore wealth of residents claiming foreign roots, forcing money managers to dilute reliance on London's colonies of rich expatriates, according to Reuters. The government unveils its next annual budget in March and is expected to update a review launched last year of the taxation of people who are resident in the UK but claim links elsewhere and have assets and income overseas. While few expect the government to entirely abolish a loophole for non-domiciled residents that exempts them from tax on overseas wealth unless remitted to the UK, some proposed tightening is seen as likely. At stake is a competitive advantage enjoyed by London wealth managers over European peers. Many thrive off running money offshore for thousands of highly paid foreign financiers working in the City as well as less economically active but rich expats based in London in order to take advantage of the tax regime. The model is reinforced by London's links with Britain's Channel Island tax havens of Jersey and Guernsey, where many wealth managers have subsidiaries running clients' assets beyond the reach of UK tax authorities. "We've got a big UK resident non-domiciled community of clients based out of our Channel Islands office. It's very difficult to speculate on how they might change things, but generally from a wealth management perspective, it's a concern," said Jeremy Croysdill, head of tax at Kleinwort Benson, a London investment manager owned by RHJ International. "It's prudent for UK wealth businesses to diversify outside the UK market," said Paul Patterson, head of operations in the UK, Channel Islands and Caribbean for Royal Bank of Canada's wealth arm. He said uncertainty about the government's intentions had contributed to a decision by the bank to direct expansion efforts into emerging markets and towards UK onshore clients, reducing its focus on resident non-domiciled customers. So-called non-doms enjoyed total freedom from UK taxation on their overseas wealth while residing in Britain until 2008 when the then Labour government brought in a 30,000 pounds annual levy for those resident for more than seven years. The new coalition government, which came to power last year, is under pressure to raise more tax as it grapples with deficits, and many in the financial services, legal and advisory industries fear further tightening. Some warn a hardening of the rules could start an exodus of their high-paying clients to other jurisdictions such as Switzerland. "The danger is these people will up sticks and go ... My great fear is we're going to lose people we should keep, and keep the people we should lose," said Ronnie Ludwig, a partner in the private client team at accountants Saffery Champness. According to British government figures, there were about 16,000 fewer non-doms registered in the UK in 2008-9 from a year earlier, implying the new restrictions had driven significant numbers away. However, a source at Britain's tax department, the HMRC, said the drop reflected an off-trend spike in non-doms registered during 2007-8, and the long-term momentum is still increasing. Sophie Dworetzsky, a partner specialising in private client wealth management at law firm Withers, said the most significant impact of uncertainty over the non-dom status is the fact it is discouraging wealthy migrants from coming to Britain.