Abolition of Non-Dom Status Could Cost £6.5 Billion by 2035

If the Government enacts its plans to abolish non-dom tax status, this could cost the UK £6.5 billion by 2035, and 23,000 jobs by 2030;

• This will be due to lower investment in capital, a drop in tax revenue, reduced consumption across the economy, and a corresponding loss of jobs;

• These figures are drawn from new research by the Adam Smith Institute, a leading economic think tank, which assessed the potential economic impact of just 5,800 of the 21,100 remittance basis non-doms exiting the country;

• Non-doms are expected to leave for a number of reasons, including the abolition of their current tax status, increased taxes on High Net Worth Individuals (HNWIs), the UK’s poor economic outlook, and hostility towards wealth-creators;

• It is in Britain’s interest to attract and retain as many non-doms as possible, given that the contribute billions each year through taxes and economic activity;

• However, the UK’s current offering to HNWIs is uncompetitive, especially when compared to European rivals such as Switzerland, Spain and Italy;

• This paper proposes an Italian-style annual flat fee of £150,000 for highly mobile wealthy individuals who are resident, but not domiciled, in the UK. If all current non-doms were willing and able to afford this fee, this could raise £12.45 billion a year in tax revenue, while attracting more non-doms to our shores;

• Former Chancellor of the Exchequer Nadhim Zahawi calls on the Chancellor to heed these warnings, and consider the Adam Smith Institute proposals to prevent an exodus of  High Net Worth Individuals from the UK,  and to boost revenue and investment in the UK. 
  

A new paper from the Adam Smith Institute (ASI), entitled Farewell Non-Doms: How Non-Dom reforms can damage Britain's finances, reveals the economic cost of scrapping the non-dom status.  Its research suggests that if this policy was introduced, some 5,800 of our 21,100 ‘remittance basis’ non-doms - those taxed only on income and gains made in the UK - would leave this country. This estimate of a 26% drop is based on evidence from Denmark’s introduction of a targeted tax increase for high-income foreigners.

Under this scenario, the ASI forecasts that the UK economy will be losing £600 million a year by 2030 including some 23,000 jobs. By 2035, Britain will be losing almost £1.3 billion every year. This will lead to a cumulative loss of £6.52 billion.

Abolishing non-dom status would clearly harm the UK’s economic prospects, resulting in reduced capital investment, job losses and lower overall consumption. This decline would also correspond with a reduction in tax revenue. Currently, the top 1% of earners, many of whom are non-doms, contribute 29.1% of total tax revenues.

While the proposed abolition of the non-dom regime is a key driver of non-dom flight, it is exacerbated by wider economic challenges, such as falling productivity, an inefficient planning system, and a skills gap in the labour market. Furthermore, a growing hostility towards wealth creators has weakened the UK’s attractiveness to HNWIs compared to countries like Switzerland, Spain, and Italy, which have more favourable tax and investment climates.

Keeping non-doms in the UK is vital, as they contribute billions to the economy through taxes and spending. Their presence underpins public services, drives investment, and stimulates broader economic activity.

This paper advocates for an Italian-style annual flat fee of £150,000 for wealthy UK residents who are not tax-domiciled. The policy could raise £12.45 billion a year while attracting more non-doms, generating further tax revenue and boosting the wider economy too.

The Rt Hon Nadhim Zahawi, former Chancellor of the Exchequer, said:

“The proposed abolition of the Non-Dom tax status is a serious risk to our international competitiveness. It will repel investors, strangle growth and hit the Treasury’s coffers by reducing the revenue it collects each year. 

The Chancellor should heed these warnings, and consider other proposals to prevent an exodus of  High Net Worth Individuals from the UK.

The Adam Smith Institute’s proposal for an Italian-style system would be a far better alternative, and would boost Britain’s prosperity and encourage more wealth creators to move here.”

Maxwell Marlow, Director of Research at the Adam Smith Institute and report co-author, said:

The Prime Minister says that wealth creation is the ‘number one priority of this government.’ He should therefore ditch his current plans for a non-dom raid that will cost the UK billions in lost revenue. 

Instead, he ought to replace the existing model with a flat fee system. An Italian style scheme would allow Britain to maximise its competitiveness, rather than push millionaires overseas to our European rivals.

This proposed alternative would be a win-win for both non-doms who want to stay in the UK but are currently being put off from doing so, and the UK economy, which would benefit from increased revenue and investment. 

According to Andrew Amoils from wealth intelligence firm New World Wealth, which tracks the movements of the world’s wealthy as part of the Henley Wealth Migration Dashboard:

"There is a larger question at play here. Is it possible to thrive as an economy in today’s world if one has higher tax rates than the USA?

Considering that the United States of America is almost completely dominant in high-value sectors such as tech, financial services and media & entertainment this seems unlikely unless one offers fantastic public services of course – possible examples that could get away with it include the likes of Australia, Switzerland, Iceland, Norway and Sweden.

 In the UK, public services are relatively poor so it would not fit into this category. Also, with the VAT exemption on private schools now being scrapped and wealthy Brits increasingly moving to private healthcare due to the deteriorating NHS, one could argue that UK millionaires don’t get much value for their tax. In our view, this cost-benefit analysis will almost certainly push many non-doms to leave."

Methodology:

The Adam Smith Institute used a ‘Solow Residual Model’ to dynamically estimate the effects of 5,800 remittance basis non-doms exiting the UK. This model analyses long-term data on capital inputs, outputs, accumulation, and tax treatment to generate its estimates. Remittance basis users were selected as they have most publicly available data attributed to them.

 For our analysis of UK exits, we used the mid-point of the Danish non-dom exodus, and input the amount of investment and economic growth the country would forego if 5,800 non-doms left. We also used a static tax model to estimate the tax impact, using HMRC data, as well as the effects on the country’s potential lost jobs and lost investments.

To arrive at the potential tax take from an Italian style system, we multiplied the proposed £150,000 elective tax by the total number of non-doms registered with HMRC (83,000). This gave us our £12.45bn figure, and should be understood indicatively.

Notes to editors:  

Maxwell Marlow is Director of Research at the Adam Smith Institute.

The Adam Smith Institute (ASI) has recently released its Millionaire Tracker, which calculates the proportion of the population who are millionaires and forecasts how this will change over time. It projects that the share of the population who are total millionaires will decline from 4.55% to 3.62% before the end of this parliament, representing a 20% decrease.

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