Oxford Economics raises concerns over Labour’s proposed non-dom tax reforms, warning of a potential £1bn loss.
- These changes, set to begin in April 2025, shorten tax exemptions from 15 to four years, causing unrest among wealthy foreigners.
- A study reveals a possible 32% drop in the non-dom population, which could cut tax revenue by £0.9 billion by 2029-30.
- The reforms aim to address tax system inequities, but may drive significant investments and wealthy individuals away.
- Inheritance tax alterations and removal of certain exemptions are major factors influencing the non-dom exodus.
The proposed non-dom tax reforms by Labour have sparked concerns among economists and wealthy individuals alike. Oxford Economics has warned that these changes could result in a £1bn loss to the UK economy as they might prompt affluent individuals to relocate. The reforms are expected to come into effect in April 2025 and aim to replace the current system allowing non-doms to avoid tax on overseas income for up to 15 years with a new regime that provides this benefit for just four years.
The changes form a part of Labour’s broader strategy to tackle perceived inequalities in the tax system. Initially, it was anticipated that these measures would generate an additional £3 billion annually. However, the Office for Budget Responsibility (OBR) has cast doubt on these projections, citing uncertainties tied to how non-doms may react.
A survey conducted by Oxford Economics suggests that such reforms could lead to a 32% decrease in the non-dom population, potentially slashing tax revenue by £0.9 billion by 2029-30. Out of those surveyed, a striking 63% of non-doms are either planning or considering leaving the UK within the upcoming years.
Chris Etherington from RSM has voiced apprehensions about the insufficient research backing these plans. He stated, “The Chancellor could find her financial forecasts are built on sand if we see large numbers of non-doms leaving the UK,” pointing out that political motives might be outweighing economic ones in driving these reforms.
Furthermore, the survey indicated significant UK investments from non-doms, amounting to £8.4 billion, which could be withdrawn if they chose to leave. A staggering 96% of those surveyed suggested they would diminish their UK investments, highlighting the potential economic ramifications.
The revisions to inheritance tax are another critical concern, with 83% of non-doms indicating it as a pivotal reason for contemplating emigration. The new policy dictates that wealthy foreign residents will endure inheritance tax on global assets after ten years in the UK, removing the prior exemption for foreign assets held in trust.
Despite these concerns, a spokesperson from HM Treasury defended the reforms, explaining that the intention is to amend inequities within the current tax framework. The UK government is determined to eliminate the outdated non-dom tax system and replace it with a competitive residence-based regime that is globally attractive, intended to lure top talent and investment into the country.
Labour’s non-dom tax reforms aim to address tax inequities but may inadvertently drive away crucial investment and wealthy residents.
