Non-doms have already started pulling money out of Britain, divesting hundreds of millions of pounds in assets ahead of an expected tax raid, a survey has found.
One non-dom told The National the measures would force him to leave, along with others like him, who live in Britain but whose permanent home for tax purposes is outside the UK.
Almost all of the wealthiest non-doms, 98 per cent, are predicted to follow suit if Chancellor Rachel Reeves forges ahead with a plan to toughen up rules brought forward by her Conservative predecessor Jeremy Hunt to squeeze an additional £1 billion from them, according to new research by a think tank. It suggests an alternative plan could persuade the vast majority of the super-wealthy to stay.
Many more of the super-rich have already decided to not invest further in Britain, according to the new research from Oxford Economics ahead of the government's budget this month. There are almost 70,000 wealthy foreigners with non-dom status currently living in the UK, who paid £8.9 billion in taxes last year, according to estimates.
The study found that just 13 per cent of non-doms would leave the UK under an alternative tiered tax regime, and 73 per cent would stay longer than previously planned.
The survey of 115 non-doms found that 29 of them have already divested £842.2 million of assets, worth an average £29 million each, ahead of the planned changes.
Scrapping non-dom status
A non-dom is defined as someone who lives in the UK but registers their permanent home as overseas and may not have to pay tax on their foreign income. Under the changes, the status would be scrapped and replaced by a new residency-based regime that applies to both foreign income and gains, introducing inheritance tax on their assets starting from April 2025.
That means all assets held overseas by wealthy foreign nationals who have been UK resident for more than 10 years will be subject to British inheritance tax rules and can remain so for up to 10 years after leaving the UK.
Treasury officials have reportedly warned the Chancellor's plan could backfire dramatically due to the number of super-rich who are predicted to leave. Ms Reeves is reportedly considering softening the proposals as a result.
The survey from Oxford Economics says the crisis could be largely averted by the introduction of a tiered tax system, used in countries including Italy and Greece, that would see non-doms paying fixed annual fees instead.
Willing to pay
Gabor Futo, a non-dom from Hungary who moved to the UK three years ago with his family, including three children, told The National most wealthy foreign nationals would be willing to pay more tax but are preparing to leave due to the current proposals. “The biggest shock is the inheritance tax, to many people, and its 10-year tail that even if you leave, your heirs will still suffer,” he said.
“People are frightened and they are leaving. I have at least three friends who have already left to go to Italy. ” He said they do not want leave it too late and risk getting caught up by the 10-year rule.
Mr Futo, who has invested £100 million in social and affordable housing in the UK, said his friends agree that wealthy people should pay more tax but there could be a better system than the one proposed by the government, and most would stay under a tiered tax regime.
He is part of the Foreign Investors for Britain group, which held an event in central London on Wednesday to highlight the concerns of current non-doms about the plan.
One woman, who did not want to be named, told the room her family moved to the UK about three years ago and want to stay, but will leave under the current proposals. “We want to be contributing, fair members of society. We love it here. We are not evil leeches. We really want to make this society, our adopted home, a better place. But the current proposals will force me out.”
She said she had spent the summer exploring two other countries where her family could be based. “I have friends in this room who have done the same thing. And it is with a heavy heart I would leave,” she said. She added that she employs people, “gives to everyone from soup kitchens to museums”, buys homes and pays VAT.
Tax levy
Under the think tank scheme, non-doms would pay an annual charge based on their net wealth, which would be £200,000 for those with wealth under £100 million; £500,000 for those between £100 million and £250 million; £1 million for those between £250 million and £500 million; and £2 million for those with wealth over £500 million.
The regime would protect the non-UK assets of non-doms from inheritance tax, exempting them from tax on foreign income, gains, and UK investments for up to 15 years, while still taxing UK earnings.
“A tiered tax regime calculated by wealth and giving protection from UK taxes on foreign income, gains and inheritance tax – would reverse the near £1 billion loss calculated in our first report – so enabling non-doms to remain in the UK and have the stability to invest, employ and spend – so contributing large levels of taxes each year for front line public services,” Leslie MacLeod-Miller, chief executive of Foreign Investors for Britain told The National.
Non-doms are invested in the UK and are “proud to call the UK home”, he said. The report shows they are keen to work with the Treasury to shoulder their fair financial burden, added Mr MacLeod-Miller.
“Non-doms want to contribute and grow the economy so that we can fund front line services in health, school meals, policing and education. Non-doms are saying that if the government is serious about leading the way on growth and encouraging investment they will introduce the tiered tax regime.
“If the government listens, we can work together to fill the '£22 billion black hole'. If the government does not follow the data that we provided they will be digging their own hole, damaging growth, Britain's standing in the world and front line services.”
A spokesman for the Treasury told The National the government is "addressing unfairness in the tax system" so we can raise the revenue to rebuild our public services".
"That is 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," he added.
