The abolition of the non-dom regime has led to the government losing hundreds of millions of pounds worth of property tax revenue, researchers claimed on Monday.
A drop in the number of sales of homes worth £5 million or more in London between March 2024 and May this year cut stamp duty revenues by £401 million, according to research.
The claims are made on the basis that the number of prime property transactions had fallen below what would normally be expected over that 14-month period. It comes after data from estate agents and LonRes, the property data provider, showed that sales of prime residential properties in London dropped by 14 per cent on an annual basis in May alone.
Wealthy non-dom buyers typically dominate the prime property market and changes to the tax system are likely to have steered them away from Britain, thereby curbing the number of potential buyers in the market and pushing down transactions. This has cut the amount of money that the government raises from stamp duty.
The Labour government is reportedly considering reversing a change to the non-dom regime that removed the use of offshore trusts, which non-doms were able to use to shield their assets from UK inheritance tax. Now, these assets could be hit by a 40 per cent inheritance tax.
Since this loophole was removed in April, wealthy people have left the UK for more tax-lenient regimes such as Italy and the UAE. A referendum in Switzerland, typically a haven for the world’s wealthiest, could introduce a 50 per cent inheritance tax, leading bankers and lawyers to warn of a similar UK-style exodus of the super-rich. The Labour government is reportedly considering reversing a change to the non-dom regime that removed the use of offshore trusts, which non-doms were able to use to shield their assets from UK inheritance tax. Now, these assets could be hit by a 40 per cent inheritance tax.
For decades, foreigners could relocate to the UK but be classified as domiciled elsewhere for tax purposes, thereby exempting most of their overseas income and assets from UK levies. These people were known as “non-doms” and the status was abolished by Jeremy Hunt, the Conservative chancellor, in March 2024. Rachel Reeves has retained the abolition.
European countries have introduced welcoming tax policies in an effort to lure investors. New investors in Italy can pay a flat €200,000 tax on foreign income and assets over 15 years and are exempt from inheritance tax. These changes have raised the relative attraction of other jurisdictions compared with the UK for wealthy individuals.
The government estimated that the removal of the non-dom status would raise £34 billion by 2029-30 for the Treasury, but some economists believe that the extra tax revenue could be outweighed by lost economic activity and investment caused by clamping down on wealthy investors.
A report from the Centre for Economics and Business Research, a consultancy, claimed that the net gain for the Treasury from its changes to the non-dom system would be zero if 25 per cent of non-doms left the UK.
A Treasury spokesperson said: “The UK remains highly attractive. Our main capital gains tax rate is lower than any other G7 European country and our new residence-based regime is simpler and more attractive than the previous one, whilst it also addresses tax system unfairness so every long-term resident pays their taxes here.
“As the chancellor set out at spring statement, the government will continue to work with stakeholders to ensure the new regime is internationally competitive and continues to focus on attracting the best talent and investment to the UK.”
Source: Lonres & The Times
