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Exit of Non-Doms Might Lead to £12.2bn Loss for the Treasury

Revised government alterations to the non-dom regimen may generate significantly lower outcomes than predicted, potential losses to the Treasury running into billions.

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Exit of Non-Doms Might Lead to £12.2bn Loss for the Treasury

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Chancellor Rachel Reeves' decision to axe tax exemptions for the rich and wealthy, non-domiciled individuals, might result in a substantial financial blow to the Treasury, according to a new study. The research suggests that billions could be lost from public funds, casting a shadow over the Treasury's fiscal plans.

Last year's Autumn Budget saw Reeves following through on her manifesto promises by abolishing tax exemptions for non-doms, as estimated by the Office for Budget Responsibility (OBR) to yield additional tax receipts of £10.3 billion this year.

However, the Centre for Economics and Business Research (Cebr) paints a different picture. Even if no non-doms decide to flee the country as a consequence of the changes, the Treasury would only see gains of £2.5 billion in the initial year. This forecast could potentially cause some discomfort for OBR economists.

If more than a quarter of the UK's non-doms exit the country, the Treasury would start hemorrhaging money, according to researchers. The scenario of half of all non-doms departing by 2030 would result in the government's revenues plunging an estimated £12.2 billion.

The Cebr reported that the average non-dom contributes 21 times more income tax than the average median income earner, and significantly more in national insurance contributions and capital gains taxes. Losing these high-earning, high-spending individuals due to a tax exodus would put additional pressure on public finances, following Reeves' increase in taxes on employment and substantial cuts to welfare to maintain a modest £9.9 billion fiscal headroom.

Criticizing the research, which was commissioned by the pro-enterprise campaign group Land of Opportunity, Shadow Business Secretary Andrew Griffith accused Reeves of getting her numbers wrong. "Investors and wealth creators leaving the UK for greener pastures is nothing short of disastrous for our economy," he said. "It also means we will all have to pay higher taxes to make up the shortfall."

Cebr managing economist Sam Miley noted the government's dependence on keeping former non-doms in the UK. "For every non-dom deciding to relocate, the Treasury will lose not only the tax revenue from their income and gains, but also from their daily expenses, as non-doms are typically high spenders as well as high earners," Miley said. He added that the risks to the Treasury appear more substantial than suggested by the OBR in its assessment of the changes.

A Treasury spokesperson dismissed the figures, maintaining that the independent OBR has confirmed the changes would raise £33.8 billion over the next five years. The spokesperson asserted that the new residence-based tax system attracts the best talent and investment to the UK, ensuring that everyone who is a long-term resident in the UK pays their taxes here.

Several high-profile non-doms have already taken their leave from the UK, with many others preparing to follow suit, reportedly lured by more tax-friendly jurisdictions.

Goldman Sachs' top banker, Richard Gnodde, is one such high-profile figure leaving, moving to Milan to dodge the changes to the non-dom regime. Egyptian billionaire Nassef Sawiris and steel tycoon Lakshmi Mittal are among others preparing an exit, with high taxes being the culprit for their decision to depart.

  1. Chancellor Rachel Reeves' decision to eliminate tax exemptions for the rich might lead to a significant financial loss for the Treasury, as suggested by a new study.
  2. Last year's Autumn Budget saw Reeves fulfilling her manifesto promises by scrapping tax exemptions for non-domiciled individuals, estimated to generate additional tax receipts of £10.3 billion this year by the Office for Budget Responsibility (OBR).
  3. However, the Centre for Economics and Business Research (Cebr) predicts that, even without any non-doms leaving the country, the Treasury would only see gains of £2.5 billion in the initial year.
  4. Criticizing the research, Shadow Business Secretary Andrew Griffith accused Reeves of getting her numbers wrong, implying that the exodus of investors and wealth creators due to higher taxes would be disastrous for the economy.
  5. Sam Miley, the Cebr managing economist, stated that the risks to the Treasury appear more substantial than suggested by the OBR, as for every non-dom deciding to relocate, the Treasury would lose not only their tax revenue but also their daily expenses, as non-doms are typically high spenders.
  6. Goldman Sachs' top banker, Richard Gnodde, and Egyptian billionaire Nassef Sawiris are among several high-profile non-doms who have already decided to leave the UK, allegedly drawn by more tax-friendly jurisdictions.
Altered non-dom regulations may produce significantly lower returns than predicted, potentially resulting in losses worth billions for the national treasury.

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