WHY WE SHOULD ALL BE CONCERNED ABOUT NON-DOMICILED RESIDENTS LEAVING THE UK

Following Labour’s landslide victory in the 2024 UK general election, there are significant changes on the horizon for non-domiciled (non-dom) residents currently residing in the United Kingdom.

In a significant step away from past practices, the government plans to phase out the long-established non-dom regime, which will then be replaced by a system based on an individual’s residence status named the ‘Foreign Income and Gains (FIG) regime’. This change is due to take effect from April 2025 and is expected to have far-reaching implications for the approximately 74,000 non-doms, who have traditionally enjoyed the favourable UK tax conditions.

In short, the non-dom status offered within the UK allows individuals who reside in the UK but are domiciled in another country to benefit from some tax advantages. This regime, which was first established over a century ago, permits non-doms to pay UK tax only on UK income and foreign income that they bring into the UK.

This change is driving high numbers of non-doms out of the UK and to jurisdictions that will continue the previously favourable tax regime – but why should we care if high numbers of non-doms leave?

Firstly, there would be a huge loss of tax revenue. Despite having a special tax status, non-doms still contribute significantly to the UK’s tax revenue. They still pay taxes on all UK income and gains, with many even opting to pay a charge to retain their non-dom status. Their departure to other shores would drastically reduce this revenue stream.

Secondly, there is the economic contributions. Non-doms tend to invest in business, property and other assets across the UK. These investments can then help stimulate economic growth, create jobs, and support the local business sector around their investments. Losing these will potentially cause economic activity to slow and job creation to be reduced.

In line with this, non-doms typically have a much higher disposable income and therefore contribute significantly to the luxury goods market, high-end services and property sectors. If this spend drops, the sectors involved will be negatively impacted.

Then there are the philanthropic and cultural support non-doms bring. Many are active philanthropists who make large donations to charities, educational establishments and cultural institutions. A reduction of funding for this type of organisation could drastically affect their ability to operate and contribute to those in need.

Finally, there is perception. The departure of non-doms from the UK could damage the international appeal it currently has. Typically, the UK is viewed as a welcoming and attractive destination for global talent and investment, but with non-doms leaving in the masses, this could deter future non-doms and other potential investors.

Non-dom residents are much, much more than ‘wealthy people who try avoid tax’, they bring so much to the UK and its economy, and the removal of the tax status will lead to a loss of spending power that far outweighs the taxes they save. We could see reduced economic growth, lower tax revenues and a less dynamic business environment. It also brings to light a key question – where will the government make up the missing funds? Could it lead to higher taxes for the general public?

With many non-doms already opting to leave the UK to jurisdictions with more favourable tax options, we will likely see the fallout of the decision to scrap this tax status sooner rather than later. Yes, they save on tax, but they make up for that saving considerably by spending generously and investing across the UK. Although some may choose to stay and be willing to pay the tax on their worldwide income, many more are likely to continue taking flight to sunnier shores.