Are non-dom changes forcing people away from the UK?

<p>Since the chancellor abolished ‘non-dom’ status on 6 March, the only details of the new regime published by the government are in a policy document and technical note released on the day. There is no draft legislation or even a specific date when this can be expected, and the longer the uncertainties continue, the more non-doms may vote with their feet. The uncertainty has increased even more with Labour announcing plans to further extend the proposed rules to try and raise additional tax from about <a href="https://www.gov.uk/government/statistics/statistics-on-non-domiciled-taxpayers-in-the-uk/statistical-commentary-on-non-domiciled-taxpayers-in-the-uk--2">37,000 or so taxpayers</a> that benefit from the remittance basis regime, estimated to be contributing over £6bn in income tax, National Insurance contributions and capital gains tax.</p><p>When publishing the proposals, the government estimated that the reforms will raise additional revenues of around £3bn per year by 2028/29. However, there remains significant uncertainty about how realistic this is. A <a href="/content/dam/media/fac/soc/economics/research/centres/cage/manage/publications/wp630.2022.pdf">Warwick University study</a> prior to the Spring Budget concluded that, based on reactions to previous reforms to the non-dom regime, very few non-doms would respond to the loss of favoured tax status by leaving the UK. The study estimated that abolishing the remittance basis would lead to only 2% of remittance basis users leaving.</p><p>But our experience of advising non-doms has been very different. We have seen a flurry of queries from affected clients considering their options, and, for many, leaving the UK is the most likely result. The threat of individuals leaving the UK due to tax changes can often seem a hollow one, but many non-doms are not as tied to the UK as the Treasury and Labour may currently assume. The reaction from the non-dom community may have already surprised the chancellor and his team. The risk is not only a potential loss in tax revenue from the individuals themselves should they leave the UK, but also whether there is a broader economic impact, as a result of wider business interests in the UK leaving with them. Replacing <a href="https://www.independent.co.uk/news/uk/politics/what-is-non-dom-tax-status-meaning-labour-b2525518.html">‘semi-skimmed’ provisions with ‘full fat’ ones</a>, as badged by a Labour party source, could ultimately end up with milk being spilt all over the Treasury floor and curdled tax receipts.</p><p>The new regime may be scaring wealthy Brits away from the UK too, by exempting them from UK inheritance tax on foreign assets after ten years of living abroad. Whilst the new regime will be welcomed by short term visitors, it is questionable how much such visitors will invest in the economy, especially compared to the loss of investment from doms and non-doms selling up and settling elsewhere.</p><p>Whilst transitional provisions have been proposed, they arguably do not go far enough to prevent an exodus of non-doms. Some argue that in order to make the new system workable, the government could consider relaxing the proposed rules and introduce grand-fathering provisions to soften any blow to the economy in the short-term, whilst the country waits to see how non-doms will react. Whilst that might be the prudent approach economically, the route forward may be dictated by a political answer and whether this is the issue on which Downing Street wants to draw battle lines.</p><p>Many individuals impacted by the current uncertainties of the new regime may be starting to feel that the resulting financial insecurity makes it untenable for them to stay in the UK. These individuals urgently need clarity on how the new rules will work and Labour’s recent intervention has only added to the uncertainty. The longer the government delays publishing further details, the fewer people that may be left in the UK to consider them. If the chancellor’s intention is to raise more tax from non-doms rather than to frighten them away, he needs to act fast.</p>