As recently as the late 1990s, Britain's failure to join the newly created eurozone appeared to threaten London's pre-eminence as Europe's leading financial centre. Frankfurt and even Paris were mooted as possible usurpers of London's crown.

Move forward a decade and the continental European challenge has faded. London is now challenging New York as the leading centre of global finance. But it is not only the business of the big institutions that is being carried out in the British capital. Wealthy individuals are increasingly making London their home and the conduit for managing family finances.

For those who associate offshore centres with balmy tropical islands, the recent rain-drenched summer may make London seem an odd contender for the role of tax haven. Nor does it qualify by the traditional definition of a place with lax supervision where the volume of financial dealings far outstrips the size of the domestic economy.

But a combination of the favourable treatment of those who can claim the tax status of resident non-domiciliaries and a growing body of expertise in the management of family wealth have cemented the British capital's role as an offshore centre. Techniques developed to maximise the returns on billions of pounds of institutional money are increasingly being applied to the management of mere millions.

“We bring innovative ideas that our investment bank has devised for institutional clients to the customers of our private bank,” says Tom Slocock, at Credit Suisse's private banking business in the UK. “London has stolen a march in terms of expertise,” says Paul Knox, head of UK wealth advisory at JPMorgan Private Bank. “Clients with little or no UK connection come to London to sort out their tax and estate planning and family structures.”

A big part of London's appeal lies in the “non-dom” rules, a regular source of controversy, although so far there are no signs that the government plans to change the rules. They provide for favourable tax treatment that reduces the tax bills of wealthy people who live in the UK but do not regard it as their permanent home.

In many countries, residents are taxed on their worldwide income and capital gains, while US citizens are taxed in the US on their worldwide income wherever they live. But UK residents who are not domiciled in the UK – usually because their fathers were not British – are liable for tax on their overseas income and gains only if they are brought into the UK.

The non-dom rules have been under review for several years now, but tax advisers and wealthy individuals draw hope from the fact that Gordon Brown, now prime minister, took no action against the perk during 10 years as chancellor of the exchequer.

Government action is constrained by concerns that a clamp-down would only lead to the highly mobile wealthy moving abroad, leading a reduction in the tax-take, rather than an increase, and a flight of expertise if entrepreneurs, hedge fund managers and private equity millionaires decided to decamp.

But controversy surrounding the non-dom rules has heated up as the numbers claiming this status have risen. The latest figures show a 72 per cent increase to 112,000 over the three years to 2005. This group, from long-established Greek shipping tycoons to more recently arrived Russian oligarchs, paid £3.3bn in tax on their UK income in 2004-05, according to Treasury figures.

Pressure has also come in the form of a ruling last October by the Special Commissioners, who adjudicate tax disputes, on the status of a British-born businessman based in the Seychelles. The commissioners ruled that the businessman had close ties with the UK because his wife lived there and because of the time he spent each year in the UK.