Abolishing tax perks for non-doms could significantly boost UK tax revenue without risking an exodus of the super-richThursday 9 Mar 2023
New estimates show taxing the foreign investments of super-rich non-doms wouldn’t push them to leave the UK en masse. Doing so would raise over £3.2 billion a year in additional revenue for the UK Government.
The term ‘non-dom’, short for non-domiciled individual, refers to a UK resident whose permanent home is outside the UK. Non-doms pay UK tax on money earned in the UK but no tax on investment returns made elsewhere in the world. This is known as the remittance basis of taxation which dates back to the colonial era.
Non-doms using this tax break are among the UK’s super-rich. After accounting for their overseas income, one third of non-doms are in the UK’s top 0.1% by both income and wealth, while the vast majority of them fall in the top 1% of income and wealth in the country.
There has been much debate about whether the UK’s non-doms should pay tax on foreign income, in the same way others living in the UK already have to. A key argument against the abolition of non-dom status is the concern that non-doms will choose to leave the country, taking their wealth and investment with them. In their paper ‘Taxation and Migration by the Super-Rich', Arun Advani, David Burgherr and Andy Summers use evidence from reforms to the non-dom regime made in 2017 to estimate how many non-doms would leave the UK if the regime were abolished.
The reforms introduced in 2017 removed access to the remittance basis for UK-born non-doms and long-stayers who have lived in the UK for at least 15 years. The reform caused a large tax increase for affected non-doms. But did the higher levels of tax encourage these wealthy individuals to leave the UK? The evidence suggests not.
As a result of the 2017 reform, non-doms losing access to the remittance basis experienced a roughly 10% fall in the share of their income they could keep post-tax. However, their migration response was limited. Only 0.2% of long-staying and 2% of UK-born non-doms left the country due to the reform. Those who did leave mostly reported little UK income and paid little UK tax before the reform.
Based on the 2017 evidence, the researchers calculate that abolishing non-dom status would lead to fewer than 100 people emigrating. They estimate that the abolition of the preferential tax regime would increase tax revenue by 84% (£3.2 billion a year) even after accounting for those who may choose to leave.
While some previous studies have found that high-earning migrants may move across borders following tax hikes, the researchers document that for the UK’s super-rich, who have large amounts of capital income, the response is small. Their great fortunes mean that higher tax rates have a negligible impact on the lifestyle of these individuals, which may explain why they are not sufficient to cause emigration. Abolishing tax perks for non-doms could therefore significantly boost UK tax revenue without risking an exodus of the super-rich.
Advani, A., Burgherr, D., Summers, A. (2022). Taxation and migration by the super-rich. CAGE Working Paper (no. 630).