Proposed UK non-dom tax reforms may lead to significant fiscal challenges.
- Changes to non-dom residency could decrease their number by 32%.
- These reforms may lead to an annual £0.9 billion drop in tax revenue.
- 63% of non-doms are considering leaving the UK due to reform plans.
- Inheritance tax changes are prompting non-doms to reconsider UK investment.
The UK’s proposed modification to its tax regime for non-domiciled individuals is poised to reshape the economic landscape. The existing system allows non-doms to avoid paying taxes on foreign income for up to 15 years, but this will be curtailed to just four years from April 2025. This reform is part of broader efforts to restore equity within the tax system. Initially, the government anticipated that these changes would generate an additional £3 billion annually, according to the Office for Budget Responsibility (OBR). However, there is substantial unpredictability surrounding the anticipated behavioral changes among non-doms, which could affect these projections.
The analysis conducted by Oxford Economics suggests that the non-dom population could potentially shrink by 32% due to these impending changes, resulting in a potential reduction of £0.9 billion in tax revenue by the fiscal year 2029-30. This analysis was based on a survey that involved 73 non-doms and 42 tax advisers, collectively representing 952 non-dom clients. A remarkable 63% of the non-doms surveyed are actively planning or seriously considering leaving the UK within the next two years, a trend that could greatly impact the economy and its tax revenue.
Christopher Etherington of RSM expressed concerns regarding the depth of research backing these reforms, stating the financial forecasts might be unstable if a significant outflow of non-doms occurs. Etherington opines, “The Chancellor could find her financial forecasts are built on sand if we see large numbers of non-doms leaving the UK. The proposals have arguably been driven more by politics than economics.” The financial stakes are considerable, given that the respondents in the survey hold approximately £8.4 billion in investments within the UK economy. Should they decide to leave, 96% of these individuals indicated they would decrease their investments substantially.
Inheritance tax alterations represent a substantial factor inciting this potential exodus, with 83% of non-doms expressing concern over these changes as a critical reason for potential migration. The reform outlines that non-doms, after residing in the UK for a decade, will become subject to inheritance tax on their worldwide assets, eliminating previous exemptions on foreign assets held in trusts. This shift constitutes a significant worry for many non-domiciled individuals, prompting them to reconsider their commitment to the UK market.
Despite these concerns, the UK government maintains its stance on the reforms. An HM Treasury spokesperson defended the changes by stating they aim to redress unfairness in the current tax system. The intention is to abolish the outdated non-dom tax regime in favor of a more competitive, residence-based system designed to draw the best talent and investment to the UK. The proposed system is thus intended to modernize the UK’s fiscal landscape to better align with global standards.
The potential reduction in non-dom numbers and investment highlights the critical need to assess the long-term economic implications of these tax reforms.
