Oxford Economics has issued a stark warning regarding Labour’s proposed non-dom tax reforms, highlighting potential economic consequences.
- The reforms, set to take effect from April 2025, shorten the tax exemption period from 15 years to four.
- The Office for Budget Responsibility initially projected an annual revenue increase of £3 billion, though estimates are uncertain.
- Oxford Economics projects a 32% reduction in the non-dom population, equating to a £0.9 billion revenue loss by 2029-30.
- Concerns centre around the impact on investments and inheritance tax changes, potentially driving wealthy individuals to leave the UK.
Labour’s proposed non-dom tax reforms, effective from April 2025, intend to reduce the current 15-year tax exemption period on overseas income for non-domiciled individuals to just four years. This initiative aims to address perceived inequities within the tax system.
Initially, the Office for Budget Responsibility (OBR) anticipated that these changes would generate an additional £3 billion in annual tax revenue. However, the OBR has acknowledged significant uncertainty surrounding these projections due to the unpredictable behavioural responses of non-doms.
A survey conducted by Oxford Economics indicates that the non-dom population could decrease by 32% because of the reforms. Should this occur, it is estimated that tax revenues could decline by approximately £0.9 billion by the fiscal year 2029-30. The study, which involved 73 non-doms and 42 tax advisers representing 952 non-dom clients, noted that 63% of non-doms are either planning or seriously considering leaving the UK within the next two years.
Chris Etherington of RSM highlighted concerns over the lack of comprehensive research backing the reforms. ‘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,’ he remarked.
The survey revealed that non-doms hold substantial investments in the UK, collectively amounting to £8.4 billion. Alarmingly, 96% of these individuals indicated they would reduce their investments in the UK if they decided to emigrate.
Changes to inheritance tax under the proposed reforms are a major concern, with 83% of non-doms citing this as a critical factor in their decision-making process. The reforms stipulate that wealthy foreigners will be subject to inheritance tax on worldwide assets after ten years of UK residence, and the previous exemption on foreign assets held in trust has been removed.
Oxford Economics warns that the proposed changes could trigger a significant exodus of non-doms, a group that currently makes a notable contribution to the UK economy and tax revenues. An HM Treasury spokesperson defended the reforms, stating, ‘We are committed to addressing unfairness in the tax system. That’s why we are removing the outdated non-dom tax regime and replacing it with a new, internationally competitive, residence-based regime focused on attracting the best talent and investment to the UK.’
Oxford Economics cautions that Labour’s non-dom tax reforms may risk substantial economic repercussions, including a significant loss of tax revenue and investment.
