Potential repercussions loom as Labour’s proposed tax reforms concerning non-doms draw attention.
- Oxford Economics warns of a potential £1bn cost to Labour due to non-dom departures.
- The reforms aim to shorten non-dom tax exemptions from 15 to 4 years, beginning April 2025.
- A study reveals 63% of non-doms are considering leaving the UK, risking a £0.9bn revenue loss.
- Concerns mount over inheritance tax changes, affecting non-doms’ UK investments.
The proposed non-dom tax reforms have sparked considerable debate regarding their implications for the UK’s economic landscape. Oxford Economics has highlighted a potential £1 billion cost to Labour, resulting from wealthy individuals choosing to leave the country. This estimate is backed by substantial data pointing to a significant exodus of non-doms if the reforms proceed as planned.
Starting in April 2025, the reforms will alter the current regime, which lets non-doms avoid tax on overseas income for up to 15 years, to a more restrictive four-year benefit. Labour’s intent is to address perceived inequalities within the tax system; however, the Office for Budget Responsibility (OBR) has expressed uncertainties about the potential financial outcomes due to unpredictable behavioural changes among non-doms.
The research by Oxford Economics suggests a 32% decrease in the non-dom population could ensue, severely impacting tax revenues. The findings indicate that such a reduction might lead to a loss of approximately £0.9 billion by 2029-2030. Significantly, the survey covered 73 non-doms and 42 tax advisers representing over 900 clients, portraying a widespread concern over the proposed changes.
Chris Etherington from RSM articulated apprehensions, citing “The Chancellor could find her financial forecasts are built on sand if we see large numbers of non-doms leaving the UK.” The move is perceived by some as politically motivated rather than economically sound, leading to calls for a reassessment of the underlying assumptions and empirical data.
The potential exodus of non-doms stands to affect their substantial investments, calculated at £8.4 billion within the UK economy. Should these individuals depart, a staggering 96% indicated plans to curtail their UK investments drastically. The modifications to the inheritance tax further exacerbate these concerns, with many non-doms alarmed by the taxation on worldwide assets after a decade of UK residency, coupled with the removal of previous exemptions.
Oxford Economics warns of an imminent ‘large migration’ of non-doms, a cohort pivotal to the UK’s economic and fiscal stability. Despite these warnings, an HM Treasury spokesperson defended the reforms, stating, “We are committed to addressing unfairness in the tax system by removing the outdated non-dom tax regime and introducing a new, internationally competitive, residence-based regime focused on attracting the best talent and investment to the UK.”
In summary, while aimed at addressing systemic inequities, Labour’s proposed non-dom tax reforms risk significant economic and fiscal repercussions, as indicated by Oxford Economics’ analysis.
