The new Labour Government's proposed reform of the non-dom tax regime could cost the taxpayer £6.5billion by 2035, according to new research.
A report from the Adam Smith Institute determined scrapping the HM Revenue and Customs (HMRC) status would axe 23,000 jobs from the UK's economy over the next six years.
This will be due to the loss in investment and consumption with Chancellor Rachel Reeves being urged to reconsider her overhaul of non-dom tax rules.
Under the tax raid, a quarter of the UK's 21,100 non-domiciles will be forced to move overseas in a move that will cost the economy £600million annually in lost gross domestic product (GDP) by the end of the decade.
According to the Adam Smith Institute, this will balloon to £1.3billion a year by 2035, leading to an overall loss of £6.52billion over the next 10 years.
Plans to scrap the tax status were confirmed by former Chancellor Jeremy Hunt during the Spring Budget with the idea to introduce time-limited tax breaks on overseas wealth residing in Britain instead.
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Jeremy Hunt abolished non dom status in Spring Budget
GB NEWSHowever, Reeves has pledged to take this one step and shut down non-dom-linked inheritance tax breaks altogether.
Axing the non-dom tax regime “once and for all” was a Labour manifesto pledge that the party claimed would raise £5.2billion for the public purse by 2028-29.
It is understood that Reeves is looking into changing this initial electoral promise to ease concerns about a mass exodus from the UK's non-dom elite.
Under the non-domiciled tax system, wealthy people who live in Britain but have a permanent home overseas do not have to pay tax on foreign earnings, unless the money is brought back to the UK.
Maxwell Marlow, the think tank’s research director and co-author of the report, believes the proposed changes will lead to the economy taking a hit.
He explained: "The Prime Minister says that wealth creation is the ‘number one priority of this Government'.
"He should therefore ditch his current plans for a non-dom raid that will cost the UK billions in lost revenue."
In its assessment, the Adam Smith Institute is recommending an Italian-style flat fee of £150,000 on non-dom wealth.
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Chancellor Rachel Reeves gave a speech at the TreasuryPA
Since 2019, Italy has had a tax flat charge equivalent to only £85,000 on all foreign income.
Based on the think tank's findings, such a charge will generate £12.45billion in tax revenues.
A Treasury spokesman said: "The Office for Budget Responsibility (OBR) will set out costings in the usual way at Budget.
"We are addressing unfairness in the tax system so we can raise revenue to rebuild our public services. The outdated non-dom regime will be replaced with a new one to attract the best talent and investment to the UK."
