Non-dom tax reforms could lose – or raise – £1bn a year

Tax changes on ultra-rich non-doms could lose or raise £1 billion a year for the government, depending on how many wealthy people choose to leave, according to research.

Figures commissioned by Foreign Investors for Britain, a lobby group, found the Treasury could lose up to £900 million a year from the scrapping of tax relief for non-doms, or raise up to £1.1 billion if fewer individuals choose to leave the country by the end of the decade.

Oxford Economics, the consultancy which provided the figures, said the fiscal impact of reforms introduced by the last government were “highly uncertain”. Its calculated tax gain was lower than the £3 billion-a-year revenue gain calculated by the Office for Budget Responsibility in March.

The report warned that scrapping the non-dom regime would have a “significantly larger” impact than changes made in 2017. The non-dom population could fall by a third in the most severe scenario, leading to an estimated £600 million tax gain in the first year of the changes in 2025-2026, which would become a £900 million annual loss for the exchequer by the end of the decade.

From April 6 next year, Britain will scrap preferential tax treatment for wealthy foreigners who are not tax-domiciled in the country, a system that excludes foreign-earned income from UK taxes. The Labour government has said it will also subject foreign non-dom assets that are held in trusts to inheritance tax as part of a new residency-based tax system.

The report surveyed 73 non-doms and more than 40 tax advisers who represent more than 950 non-dom clients. Sixty-three per cent said they planned to leave the UK within two years if the reforms were implemented and 98 per cent said they would “emigrate from the UK sooner” if the regime was scrapped.

Under the changes, non-doms coming to the UK after next April will not have to pay taxes on their foreign income for the first four years. Existing non-doms will be subject to transitional tax treatment for two years.

The survey respondents have invested an average total of £118 million in the UK and contributed £5.8 million to philanthropic causes, Oxford Economics said. There were an estimated 83,800 registered non-doms in the tax year ending 2023, a figure that has been rising since the pandemic, with the tax revenues they generate annually up to £8.9 billion, the highest in six years, according to figures from HMRC.

Estimates of the potential tax gains or losses from the changes to the non-dom regime are subject to huge uncertainty. Oxford Economics said its surveyed sample size was “not representative of the wider non-dom population”.

Under an alternative scenario where non-doms take a longer time to leave the UK, the tax changes will raise £1.3 billion in the next fiscal year, falling to £1.1 billion by 2029-2030. “The fiscal impact of the policy deteriorates over the remainder of the forecast period as elevated emigration rates in the near term and reduced immigration over the longer term reduce the size of the population significantly,” the report said.