The Chancellor’s ambitious £33 billion tax raid on non-domiciled individuals is likely to generate less revenue than initially forecast, according to leading legal experts, as wealthy individuals prepare to leave the UK in response to higher taxation.
Rachel Reeves confirmed in her October budget the abolition of the non-dom regime, which had previously allowed approximately 68,000 UK residents to avoid taxation on their overseas earnings. The Office for Budget Responsibility’s projections suggest these changes would contribute over £33 billion to the exchequer.
Central to these projections is an anticipated £10.6 billion in tax revenue during this parliament through a temporary repatriation facility offering reduced rates. This forecast relies heavily on non-doms not only remaining in the UK but also transferring substantial assets worth tens of billions of pounds to take advantage of the new 12 per cent tax rate.
Edward Hayes, director at Burges Salmon, expresses scepticism about these projections, noting that only existing non-doms would utilise the facility, precisely the group being incentivised to leave by the regime changes. James Quarmby, partner at Stephenson Harwood, echoes these concerns, revealing that private banks estimate one-third of non-doms may exit the UK.
The Treasury has defended its position, stating the replacement of the “outdated non-dom tax regime” with a new residence-based system addresses systemic unfairness while maintaining the UK’s international competitiveness. However, the OBR itself acknowledges a “very high” degree of uncertainty in its estimates.
The policy shift, initially announced by former Conservative chancellor Jeremy Hunt in March, surprised many observers, particularly as it pre-empted Labour’s election pledge. The Foreign Investors for Britain lobby group’s alternative proposal for a fixed annual payment system was ultimately rejected in favour of Reeves’ more stringent approach, which extends inheritance tax liability to more non-doms.
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