Labour's next reversal must be on non-doms before it's too late

Telegraph

4 hours ago

The abolition of the non-dom tax regime could turn out to be the worst decision taken in Rachel Reeves's first Budget. The Chancellor was convinced that few of the 83,000 foreign entrepreneurs and investors would leave the UK after its abolition and that they would still contribute £12bn in taxes over the course of the parliament.
The reality is turning out to be starkly different. Non-doms are leaving in their thousands, and taking their tax contributions, investments and potential to create jobs with them. The latest report into the abolition of non-dom status by a former Treasury economist found that more than 10pc of non-doms have already left the UK.
This follows analysis from the Centre for Economics and Business Research (CEBR) that found that once 25pc of non-doms have departed, the policy will end up actually costing the Treasury money. Tax advisers are predicting that 40pc, possibly more, of non-doms will leave the country. This will have a huge impact on our public finances, leaving the Chancellor with a multibillion-pound shortfall in tax receipts, which every other taxpayer will have to pick up.
While Britain is showing these highly productive people the door, other countries are rolling out the tax red carpet. Italy recently introduced a flat tax regime for foreign investors, allowing them to pay a fixed annual payment of €200,000 (£170,000). In Greece, they are charged a flat annual tax of €100,000 if they invest in the country.
America is planning to expand its golden visa programme and the UAE has built one of the world's fastest growing and dynamic economies by fostering an exceptionally welcoming environment for international entrepreneurs.
As an entrepreneur with investors and clients based internationally, I am acutely aware of how this policy is damaging the UK's standing. Britain has huge advantages that can attract the world's best entrepreneurs to come here, especially our outstanding schools and universities. But the message I hear constantly from those affected by this tax change is that the UK is not somewhere that welcomes them. That perception urgently needs to be addressed.
Despite the prevailing narrative that they are not paying their fair share, the somewhat inconvenient facts are very different. Non-doms currently contribute disproportionately to public finances. In 2022-23, the average non-dom paid 21 times more income tax than the median UK worker.
They are not just taxpayers, they are economic catalysts. They build businesses, invest in start-ups, create jobs and contribute to philanthropic causes – hospitals, the arts, charities and even football clubs. Their financial footprint extends beyond income tax to VAT, capital gains tax and National Insurance. The CEBR estimates that in 2023 alone, this group generated £7.7bn in total revenue across all tax types and consumer activity.
It is unrealistic to expect the Chancellor to backtrack completely on what was a flagship policy, even considering the enormous economic harm it is causing. Another reversal would likely be too embarrassing after the welfare debacle this week. But there are practical steps she can take to ensure Britain has a competitive offer in comparison to other countries, while ensuring these individuals pay their fair share of tax.
Two changes would send an important message that Britain wants entrepreneurs and investors here. First, altering the rules so non-doms do not have to pay inheritance tax (IHT) on all their worldwide assets.
These are businesses or assets they built away from Britain and before they came here – not only is it excessive overreach, but it is the single most uncompetitive policy a government could implement in a modern highly fluid and global world.
The Government should ensure that the value of non-UK assets accrued by non-doms before 2025 will not be included in future IHT assessments.
Returning to the rules before this year that ensured these assets were not subject to tax is the crucial first step in winning back confidence in Britain.
Second, the Government bodged a Budget measure it thought would attract non-domiciled people to stay - the temporary repatriation facility. This was supposed to enable them to bring all their worldwide capital into the UK at a preferential 12pc rate.
The problem is that tax advisers are warning, understandably, that they fear the government will find a way to tax this capital at higher rates in the future – retrospectively. A simple amendment to the next Finance Bill could offer greater certainty and security, but without it, few foreign entrepreneurs will want to risk bringing their global assets into the UK.
The real question is whether the UK wants to remain a hub for global capital and entrepreneurship, or whether it's prepared to watch that capital and the entire ecosystem that depends on it move elsewhere.
If the Chancellor doesn't fix this issue fast, the question will not be 'how many are leaving?' but 'why would they ever return?'.