Changes to the non-dom regime announced in the October Budget represent a “significant financial risk” amid limited fiscal headroom, according to the Centre for Economics and Business Research (CEBR).

Its report on the impact of the changes highlighted that even if non-dom emigration was limited or zero, the revenue gain was “small” and the balance between risk and potential reward seemed “unbalanced”.

However, while the policy change represented an emigration risk, its study stated that this was not an inevitability, and preventing large-scale emigration through tweaking the scheme, providing incentives, or limiting behavioural responses, would help soften any fiscal impact.

The CEBR estimated that if 25 per cent of non-dom remittance basis taxpayers left the UK due to the reforms to the foreign income and gains (FIG) regime, the net gain to the Treasury would be zero.

It noted that some sources suggested that the emigration rate would be far higher, including a study from Oxford Economics that found around 60 per cent of tax advisers expected more than 40 per cent of their non-dom clients to leave within two years of the policy changes.

If a higher emigration rate was realised, the CEBR’s modelling estimated the Treasury would begin to make a loss.

In scenarios where 33 per cent, 40 per cent, and 50 per cent of non-dom taxpayers left the UK, the net losses to the Treasury in the first year of the scheme would rise to £0.7bn, £1.4bn, and £2.4bn respectively, according to the CEBR.

Over the course of the current parliament, these losses would amount to £3.5bn, £7.1bn, and £12.2bn respectively in these scenarios.

If no non-dom taxpayers left the country, the CEBR estimated that the reforms would produce a static yield of £2.5bn in the first year, rising to £3bn in 2029/30, with these projections being lower than the Office for Budget Responsibility’s estimates of £10.3bn and £8.9bn respectively.

“London has one of the largest populations of billionaires and millionaires worldwide, meaning this will act as a draw for wealthy individuals all over the world,” the CEBR stated.

“However, were non-domiciled individuals to start leaving, the case for staying in London and the UK could be diminished further. A spiral where non-domiciled exits accelerate may come to fruition.

“The number of factors that will play a role in a non-domiciled individual’s decision to stay or leave following the policy change highlights the significant uncertainty in modelling the fiscal impacts.

“Therefore, as our analysis demonstrates, the policy change represents a significant financial risk to the Chancellor when fiscal headroom is limited, despite successive events focused on fiscal tightening.

“In the best scenario, where emigration is limited or even zero, the revenue gain is small. Overall, the balance between risk and potential reward for this policy seems unbalanced.”

Commenting on the findings, Utmost Wealth Solutions global wealth specialist, Marc Acheson, said: "These figures are unfortunately not surprising. Following the measures announced in the Autumn Budget we have seen a significant flight of wealth and are seeing many non-doms consider international options with increasing regularity.

"Many would rather not leave, but feel they have no choice – not only because of the abolition of the remittance basis, but primarily due to the legislation that subjects assets held in trusts to inheritance tax (IHT) periodic and exit charges, and also exposes global estates to IHT for anyone who has been resident in the UK for 10 years.

"The non-dom regime’s replacement with the new four-year FIG regime is internationally uncompetitive and too short. The UK has now lost much of its appeal to this community and as a result, we will see more families leave in the coming years which will inevitably result in a net loss of tax receipts for the UK Exchequer unless we offer a more competitive and appealing regime for new long-term arrivals."

---