Non-dom tax take set to fall short of £33bn forecast

The chancellor’s £33 billion tax raid on non-doms is set to raise less than forecast, say lawyers, as the wealthy subject to higher taxes race to leave the country.
In her October budget, Rachel Reeves confirmed that the non-dom regime, which has allowed an estimated 68,000 people in Britain to avoid paying taxes on overseas earnings, will be scrapped.
Office for Budget Responsibility (OBR) predictions imply that it expects the changes to bring in more than £33 billion for the exchequer. One element of its forecast is the expectation that non-doms will pay £10.6 billion in tax during this parliament, at reduced rates, under a deal known as the temporary repatriation facility.
But reaching this figure hinges not only on non-doms staying, but also bringing assets worth tens of billions of pounds into the UK to take advantage of the facility’s new lower tax rate of 12 per cent. The OBR admitted there was a “very high” degree of uncertainty in its estimates.
Edward Hayes, director at law firm Burges Salmon, believes this is optimistic as non-doms who stay will have to pay tax they had not expected to be liable for.
“The only people who will use the facility are by definition people who have already been non-doms in the UK. These are the same people being encouraged to leave by other changes to the non-dom regime.”
James Quarmby, partner at law firm Stephenson Harwood, said that while the facility would be used, it was unlikely to bring in as much as forecast. “The OBR’s figures assume a great degree of retention of non-doms, whereas the failure to grandfather trusts [set up for] inheritance tax purposes means that more non-doms will leave,” said Quarmby.
He said private banks he had been meeting were estimating that one-third of non-doms would leave.
Former Conservative chancellor Jeremy Hunt surprised observers when he announced the end of the non-dom regime in his March budget, especially as Labour — then in opposition — had pledged to do so should it win the election. The prospect of losing this favourable tax status catalysed a concerted lobbying push in the run up to the July election. The Foreign Investors for Britain lobby group campaigned for an alternative approach, under which non-doms would pay a fixed annual amount to retain their tax status. Reeves rejected this and ended up introducing a tougher policy that made more non doms liable for inheritance tax.The Treasury said: “Replacing the outdated non-dom tax regime with a new internationally competitive residence-based system addresses unfairness in our tax system, attracts the best talent and investment to the UK, and ensures everyone who is a long-term resident in the UK pays their taxes here”.