Non-dom exodus could cost the Treasury £12.2bn
Chancellor Rachel Reeves’ decision to remove tax exemptions for non-doms could lead to “billions” in losses from the public purse, new research has suggested, in a blow to the Treasury’s fiscal plans.
Reeves followed through with manifesto pledges by removing tax exemptions from mega-rich non-domiciled individuals at last year’s Autumn Budget, something the Office for Budget Responsibility estimated would yield extra tax receipts of £10.3bn this year.
But the Centre for Economics and Business Research (Cebr), has suggested that even if no individuals who held non-dom status left the UK as a result of the changes, the Treasury would only see gains of £2.5bn in the first year in a forecast which could cause embarrassment for economists at the OBR.
Researchers said that if more than a quarter of the UK’s non-doms leave the country, the Treasury would begin to incur a hefty loss.
Should half the number of non-doms leave by 2030, the government’s revenues would drop by an estimated £12.2bn.
Cebr said that the average non-dom paid 21 times more income tax than the median income earner and contributed far more in national insurance contributions and capital gains taxes than the average Brit.
Lower tax receipts as a result of an exodus of non-doms would add extra strain to public finances after Reeves raised taxes on employment and made vast cuts to welfare in order to maintain her small £9.9bn fiscal headroom.
The Treasury will lose tax revenue
Commenting on the research, which was commissioned by pro-enterprise campaign group Land of Opportunity, shadow business secretary Andrew Griffith accused Reeves of getting her “sums badly wrong”.
“Investors and wealth creators leaving the UK for brighter shores is nothing short of disastrous for our economy. It also means we will all have to pay higher taxes to make up the shortfall,” he said.
“Just like a company in turnaround, the Conservative Party is under new management. Whilst there is much further to go, we are the only party unapologetically and consistently standing up for businesses and wealth creators.”
Shadow Chancellor Mel Stride described Reeves’ tax reforms as “reckless”.
“With billions in potential losses and some of our highest taxpayers already heading for the exit, the Chancellor is risking long-term damage to the public finances and Britain’s competitiveness,” he said.
Cebr managing economist Sam Miley said the government was “highly dependent” on how many former non-doms it could keep in the UK.
“For every non-dom deciding to relocate, the Treasury will not only lose the tax revenue from their income and gains, but also from their day-to-day activities, with non-doms typically being high spenders as well as high earners,” Miley said.
“Overall, we perceive the risk to the Treasury to be more significant than suggested by the Office for Budget Responsibility in its assessment of the reforms.”
A Treasury spokesperson said: “We do not recognise these figures. The independent OBR has confirmed that the changes to the regime will raise £33.8 billion over the next five years.
“Replacing the outdated non-dom tax regime with a new internationally competitive residence-based system addresses unfairness in our tax system, attracts the best talent and investment to the UK, and ensures everyone who is a long-term resident in the UK pays their taxes here.”
Several high-profile non-doms have already packed their bags and left the UK, with many others believed to left for more tax-friendly jurisdictions.
Morning Wire revealed that Richard Gnodde, one of Goldman Sachs’ most senior bankers, was moving to Milan in order to avoid changes to the non-dom regime.
Egyptian billionaire Nassef Sawiris blamed high taxes for his departure while steel tycoon Lakshmi Mittal is also preparing an exit.