The proposed non-dom tax reforms, set to take effect from April 2025, could cost the Labour Party £1 billion as wealthy individuals consider leaving the UK, according to Oxford Economics.
The proposed reforms aim to replace the current system which allows non-doms to avoid tax on overseas income for up to fifteen years, with a new regime that offers this benefit only for four years. This change is part of Labour’s broader effort to address perceived inequities in the tax system. Initially, the Office for Budget Responsibility (OBR) expected these reforms to raise £3 billion annually; however, the estimates are subject to significant uncertainty due to unpredictable behavioural responses from non-doms.
A survey by Oxford Economics suggests a potential 32% decrease in the non-dom population as a result of these changes, which could reduce tax revenue by £0.9 billion by the financial year 2029-30. The study surveyed 73 non-doms and 42 tax advisers representing 952 non-dom clients and found that 63% of non-doms are planning or actively considering leaving the UK within the next two years.
Chris Etherington of RSM has expressed concerns about the lack of in-depth research underpinning the reforms, stating, “The Chancellor could find her financial forecasts are built on sand if we see large numbers of non-doms leaving the UK. The proposals have arguably been driven more by politics than economics.”
The study highlighted that non-doms have significant investments in the UK, with respondents collectively holding £8.4 billion in the UK economy. If the non-doms leave, 96% of these individuals indicated they would reduce their investment in the UK.
Changes to inheritance tax have also been cited as a major concern, with 83% of non-doms identifying it as a key factor in their decision to emigrate. Under the proposed reforms, wealthy foreigners will face inheritance tax on worldwide assets after ten years of UK residence, and the previous exemption on foreign assets held in trust has been removed.
Oxford Economics warns that these reforms could prompt a “large migration” of non-doms, shrinking a cohort that significantly contributes to the UK economy and tax revenues. An HM Treasury spokesperson defended the changes by stating, “We are committed to addressing unfairness in the tax system. That’s why we are removing the outdated non-dom tax regime and replacing it with a new, internationally competitive, residence-based regime focused on attracting the best talent and investment to the UK.”
The proposed non-dom tax reforms could lead to a significant exodus of wealthy individuals from the UK, potentially reducing tax revenues and investment in the UK economy. The uncertainty surrounding the behavioural responses of non-doms makes the financial outcomes of these changes difficult to predict.