Non-dom tax grab could blow £4bn hole in public finances
The government’s decision to abolish the non-dom regime will blow a £4bn hole in the public finances and lead to over 3,000 fewer jobs if a quarter of the country’s wealthy foreigners leave.
According to a fresh study from the Centre for Economics and Business Research (CEBR), non-doms choosing to leave the UK instead of taking up Labour’s less generous replacement will lead the tax take to be £4.6bn lower over five years.
Were half the country’s non-doms to leave – a worst-case scenario – the figure would be £7.8bn and cost 6,325 jobs. And if just 10 per cent depart – the Office for Budget Responsibility’s current most likely scenario – the Exchequer would miss out on £2.8bn; roughly the cost of the recent winter fuel allowance U-turn.
The paper is one of the most rigorous assessments of both the economic footprint of non-doms since the Chancellor’s Budget in the Autumn and the effect that a large number of them leaving would have on the UK’s fiscal outlook.
It also follows reports that the Treasury is looking to water down some of the more far-reaching elements of its non-dom crackdown. Morning Wire understands that rumours the government may row back on its decision to apply inheritance tax on trusts – a move which many advisers have identified as the main driver of departures but which raises just £400m – is among the more extreme options on the table.
Earlier this week the OBR conceded that: “Higher earners’ behavioural responses to tax changes are more uncertain and potentially higher than assumed in costings. A growing reliance on this small and mobile group of taxpayers therefore represents a fiscal risk.”
Since Chancellor Rachel Reeves confirmed she would plough ahead with the reforms, several ultra-high net worth foreigners have left the UK. Goldman Sachs executive Richard Gnodde and steel magnate Lakshmi Mittal have both quit as a result of the inheritance tax changes.
A spokesperson for the Treasury said: “The government will continue to work with stakeholders to ensure the new regime is internationally competitive and continues to focus on attracting the best talent and investment to the UK.”
The CEBR analysis follows a similar study from the same think tank published in May, both of which were commissioned by entrepreneur campaign group Land of Opportunity. The first paper found that if just 25 per cent of UK non-doms left, which is the upper end of the OBR’s estimates, the £33bn of extra revenue for the Exchequer would be wiped out.
Sam Miley, the CEBR’s head of forecasting, said: “[The findings] contrasts somewhat with the government’s assessment that these policy changes will not bring significant macroeconomic impacts.
“At a time when the fiscal room for manoeuvre is tight, even fine margins like these could have notable effects on policy stability over the medium term, potentially eating up a chunk of the remaining headroom.”
In another blow to the Chancellor the study shows that if just a quarter of the UK’s former non-doms depart, the economy will shrink by just 0.03 per cent. In a scenario whereby half leave for low-tax jurisdictions like the UAE or Italy, GDP would fall by 0.06 per cent.