Tax reform for ultra-wealthy non-domiciled residents in the UK could result in a financial impact ranging from a £1 billion loss to a £1 billion gain for the government, depending primarily on the emigration decisions of these affluent individuals, according to new research.

Analysis conducted by Foreign Investors for Britain, a lobbying group, indicates that the Treasury’s revenue could drop by as much as £900 million each year if the tax relief for non-doms is eliminated. Conversely, it could see an increase of up to £1.1 billion if a significant number of non-doms opt to remain in the UK through the end of this decade.

Insights from Oxford Economics, the consultancy behind the report, suggest that the fiscal consequences of the changes enacted by the previous administration remain “highly uncertain.” Their assessment of potential tax gains is notably lower than the £3 billion forecast by the Office for Budget Responsibility earlier this year.

The report cautions that removing the non-dom tax system may have a much more substantial effect than the alterations applied in 2017. It warns that the population of non-doms could decline by up to a third under the most adverse projections, resulting in an estimated tax gain of £600 million in the first year following the reforms in 2025-2026, which could eventually evolve into a £900 million annual deficit for the Treasury by the decade’s end.

Starting from April 6 next year, the UK is set to eliminate the preferential tax regime for wealthy foreign nationals not officially residing in the country, which currently allows them to exempt foreign income from UK taxation. The government has also proposed that non-dom assets held in trusts will be subject to inheritance tax as part of a shift to a residency-based tax framework.

The report gathered data from 73 non-doms along with more than 40 tax consultants representing over 950 non-dom clients. Findings revealed that 63% of participants plan to leave the UK within two years following the enactment of these reforms, while 98% indicated they would consider emigrating sooner if the non-dom status was abolished.

With the new regulations, non-doms who arrive in the UK after next April will be exempt from taxes on foreign income for their first four years in the country, while existing non-doms will transition under a special tax treatment for two years.

Surveyed individuals reported average investments totaling £118 million in the UK and contributions of £5.8 million to charitable endeavors, as per Oxford Economics. The number of registered non-doms in the tax year ending 2023 stood at approximately 83,800, reflecting an upward trend since the onset of the pandemic, with their annual tax contributions reaching £8.9 billion, the highest figure in six years based on HMRC data.

Estimates concerning the potential fiscal outcomes from the changes to the non-dom tax regime carry significant uncertainties. Oxford Economics cautioned that its sample might not accurately represent the broader non-dom demographic.

In a scenario where non-doms take longer to exit the UK, the tax reforms could generate £1.3 billion in the upcoming fiscal year, diminishing to £1.1 billion by 2029-2030. The report concluded that the long-term fiscal effects of the policy are likely to worsen as elevated emigration rates in the near future and decreased immigration rates in the longer term result in a notable reduction in the non-dom population.