Abolishing the non-dom tax regime could lead to the UK economy becoming cumulatively £6.52bn smaller by 2035.
A report by the Adam Smith Institute looked at how proposed non-dom reforms could lead to significant economic damage, including capital flight, brain drain and reduced investment.
It said: “When a non-dom leaves, taking their investments and businesses with them, the UK loses out.
"With productivity stalling and GDP per capita growth stagnant since 2007, maximising capital investment should be a key pillar of the UK’s rebuilding efforts - but chasing away non-doms will only harm our long-term economic prospects.”
According to the report, annual losses are projected at £500mn in investment and £3bn in capital stock.
“This is the possible impact of the departure of just 5,795 non doms out of 22,100 remittance basis non-doms, or as we model them according to our mid-line estimate for migration,” the report added.
Ex-chancellor Jeremy Hunt, pledged to abolish the non-dom tax status over a two-year period but keep trusts out of the scope.
However, current chancellor Rachel Reeves has pledged to include global trusts into the tax regime.
Up to the year ending 2023, non-doms contributed £6.2bn in direct tax revenue deriving from 83,000 individuals, the report revealed.
“Non domiciled individuals make up significant contributors to state coffers, especially when compared to the mean UK taxpayer who pays, on average, £6,060 in direct taxation per year,” the report explained.
Non-doms departing
According to the report, the UK is expected to lose 9,500 millionaires by the end of 2024, with millionaires per capita potentially decreasing by 20 per cent by 2028.
The report said: “Changes to the rules and treatment of wealth are of acute concern for non-doms, who are wealthier than the average individual.
The abolition of the status and the global expansion of tax-gathering powers by the government is a major disincentive
to operating in this country.
“High mobility individuals will, by nature, have interests outside of HMRC’s jurisdiction - by enclosing these trusts and subjecting them to Britain’s already steep inheritance taxes, there will be a higher incentive to exit the UK permanently.”
It also believed Britain was "missing millionaires" with analysis showing that the government’s proposed changes could lead to between 3,600 and 7,000 non-dom taxpayers leaving due to the changes.
Dhana Sabanathan, private wealth partner at law firm Michelmore, said the report confirmed what she was seeing in her practice, which was a number of non-doms no longer feeling welcome or seeing the UK as an attractive place to be.
“The harshness of the proposed new rules announced by the government meant many of the wealthiest non-doms (who have the greatest flexibility as to where to live), have left or are making plans to leave.
“As the research highlights, such departures cost the UK not only in terms of tax revenue but also in much needed investment and jobs. The knock-on effects of targeting this small but very wealthy population are huge,” she added.
