Oxford Economics warns Labour’s non-dom tax reforms may backfire, costing the UK up to £1 billion.
- The reforms shrink tax benefits for non-dom residents from 15 to 4 years, raising concerns about their economic impact.
- Oxford Economics forecasts a possible 32% drop in non-dom population, significantly affecting tax revenues.
- A survey indicates 63% of non-doms consider leaving the UK due to the impending reforms.
- Inheritance tax changes are a major concern, potentially prompting a migration of wealthy individuals.
Oxford Economics has expressed concern that Labour’s proposed reforms to the non-dom tax system could result in significant economic repercussions for the United Kingdom. The think tank warns that these changes might ultimately cost the nation around £1 billion as wealthy individuals opt to relocate, drawn by more favourable tax environments abroad.
The reforms are set to drastically cut the duration during which non-dom residents can benefit from tax exemptions on overseas income—from the current duration of up to 15 years to just 4 years under the new scheme. Officially, these reforms are designed to address perceived injustices within the UK’s tax framework. The Office for Budget Responsibility initially projected these measures to generate £3 billion annually. However, there is substantial ambiguity surrounding these figures due to unpredictable behaviour by affected non-doms.
According to a survey conducted by Oxford Economics, there could be a reduction of around 32% in the non-dom population as a direct result of these legislative changes. This population shrinkage could have profound consequences, potentially reducing the overall tax revenue by approximately £0.9 billion by the fiscal year 2029-2030.
The study surveyed both non-dom residents and their tax advisers, revealing that nearly two-thirds—63%—of non-dom residents are either planning or seriously considering leaving the UK within the next two years. Chris Etherington of RSM has voiced apprehensions, stating, “The Chancellor could find her financial forecasts are built on sand if we see large numbers of non-doms leaving the UK.”
The ramifications of such departures could extend beyond tax revenues. Non-doms have substantial investments in the UK economy, with survey respondents holding an estimated £8.4 billion in assets. If they choose to exit the country, an overwhelming 96% indicated they would reduce their investments in the UK.
Changes to the inheritance tax system are particularly contentious, with 83% of non-doms identifying them as a pivotal reason for considering emigration. Under the proposed framework, non-dom residents will be subjected to inheritance tax on their global assets after ten years of residence, with no exemptions for assets held in foreign trusts.
Oxford Economics cautions that these developments could instigate a considerable exodus of affluent non-dom individuals, significantly impacting the UK’s economy and its fiscal health. However, a spokesperson from HM Treasury defends the reforms, stating, “We are committed to addressing unfairness in the tax system. That’s why we are removing the outdated non-dom tax regime.”
The potential exodus of non-doms poses a significant risk to the UK’s fiscal stability and economic future.
