There has been much discussion of the economic effects of the changes which the Government proposes in replacing domicile as a long-term principle of fiscal connection to the UK with ‘long-term UK residence’. As we said when the previous Government published its proposals on which the present Government’s proposals are based (‘And if a stranger sojourn with thee in your land ye shall not vex him…‘ – March 2024’):
‘The UK has not given, for so many years, tax advantages to non-doms becoming resident here out of a soft-hearted sense of pity for the hardships faced by the ultra-rich. It has done so because successive Governments, Labour as well as Conservative, have been convinced that the net financial results of doing so are beneficial to the UK as a whole. That is because it was recognised for decades by almost all informed commentators that the effect of the reliefs is to attract very wealthy individuals to the UK whose contribution to the UK through the taxes they pay, the stimulus their spending gives to trade and industry, the improvements they make to UK land and property, the businesses they create and the expertise which they bring to existing businesses, charities and institutions far outweighs the contribution which would be made by that smaller number of non-doms who would live in the country even if no tax advantages were offered to them. That was a hard-headed assessment made by successive Governments for the benefit of the general population.
… anecdotal evidence suggests that, although some account has been taken by HMRC in advising the Government, of behavioural changes, they have been taken into account only to a very modest extent, in respect only of direct fiscal receipts from non-doms and on the basis of inadequate research and of a remarkably static view of the relationship between fiscal change and economic behaviour. As to the wider economic benefits of attracting wealthy foreign individuals to the country the Government’s figures plainly take no account of them nor is there any indication that the Government has taken into account the positive effect on its fiscal revenues of these wider economic benefits.’
It is very difficult to quantify such wider economic effects. That is so of any broad economic change but particularly so when dealing with the international rich who are notoriously shy of publicity and reluctant to disclose their financial affairs – often for good reason because many come from countries in which kidnapping and extortion are endemic or in which tax investigations are used as a means of persecuting the sitting government’s political opponents.
So until a change has been introduced and it is too late, one must often rely on anecdotal evidence of the likely effect of proposed fiscal charges.
I recently attended a committee meeting of many of the leading practitioners who advise ultra-wealthy international clients. The chairwoman of the meeting asked us to estimate how many of our ultra-wealthy international clients are intending to leave the UK immediately as a result of the changes proposed by the Government. Estimates varied between 25% and 50% and it was generally agreed that there is a further cohort of individuals who will not leave immediately because their children are in UK schools but will do so when their children have completed their education.
However one quantifies it, even if only 25% of the ultra-wealthy international individuals currently resident in the UK leave the country significant harm will be done to the UK economy. Although that is perfectly obvious, one does not expect the Government to change its ‘mind’ on this proposal. One can only await the economic effects of the proposal, with trepidation.
