June 20, 2025 • 15 mins
One of the architects of the government’s flagship tax crackdown on the wealthy says it was a 'mistake' to hit 'non-doms' with an immediate 40% inheritance tax on their overseas assets. Arun Advani, from the independent Centre for the Analysis of Taxation, says a gradual approach would have stopped many of the super-rich from leaving the country. He joins Yuan Potts and Caroline Hepker to discuss what effect the changes are having and what the government should do next.
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Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:09):
We inherited a complete mess at the election. Almost everything
was broken, the economy, public services, you name it.
Speaker 3 (00:18):
We have to take difficult right decisions in the budget.
Speaker 2 (00:22):
And that, if you like, was year one of this
labor government, which was clear up the mess, take the
difficult but necessary decisions. We're now very clearly moving into
sort of phase two, which is what the spending Review
ushers in, which is being clear what's the benefit from this,
what's the yield?
Speaker 4 (00:40):
So that was the Prime Minister kissed Dharma there defending
the non dom tax policy changes. In his exclusive interview
with Bloomberg's Michelle Hussein just last week, he says that
the government now wants to look at the yield. Is
the new tax regime making the government money? Hellos to
bl Berg UK Politics. I'm Caroline Hepke and I'm.
Speaker 3 (01:02):
I and Potts.
Speaker 5 (01:03):
Welcome to the program. According to the Office of Budget Responsibility,
those changes should meet the chance that almost thirty four
billion pounds over the next five years. But it's one
part of those tax changes that is causing a lot
of controversy, and that's the decision to immediately impose forty
percent inheritance tax on all overseas assets of those non
domicide residents.
Speaker 4 (01:24):
Well, we've reported on many of the wealthiest people leaving
the UK. Data compiled by Companies House that Bloomberg looked
at closely found evidence of an exodus of more than
four four hundred directors of UK businesses since last July
when Labor came to power, and that accelerated once the
non doms tax changes had been implemented. One of the
(01:48):
architects of the policy, though, now says that it was
a mistake, Aaron Advani as director of the Independent Center
for the Analysis of Taxation. He says that actually a
gradual approach would have stopped many of those super rich
from leaving Britain.
Speaker 5 (02:02):
Well, Aaron Advanti's with us on the show today. Aaron, Now,
you were quite involved with the design of all this,
weren't you. You put forward these proposals some time ago.
They haven't suddenly been cooked up in a short space
of time. What did you originally suggest to the government
with these non dom proposals.
Speaker 1 (02:17):
So we did the original analysis of the non don regime,
looking at the reform that George Osborn implemented back in
twenty seventeen to understand how mobile were non doms in
response to change and taxation. That's important because that's always
been the justification for, you know, why the regime should
stay in place. Originally, the regime was a tax break
that was given actually effectively by accident ins and so
(02:40):
it was created for a colonial reason. Back in seventeen
ninety nine, we had this thing called the remittance basis.
It was on the idea that you know, if I
have a sugar plantation somewhere in the Caribbean, I might
make some money from it, but until the money comes
on shore in the UK, I can't spend it.
Speaker 3 (02:53):
I didn't have MasterCard, I didn't have visa.
Speaker 1 (02:55):
And fast forward two hundred and twenty five years, this
regime was still in place, but it wasn't clearly it
wasn't having the same effect whereas before it was a
deferral of taxation until the money came on Sure, now
this has become a complete exemption. And for the last
twenty thirty years, every time the question came up, people said, ah,
but maybe everyone will leave. So the twenty seventeen reform
was really interesting because it gave us a chance to
say for people who'd been here more than fifteen years,
(03:18):
they lost access to the regime. What was the impact
of that? What was always that some people did leave.
So typically for people who'd been in the UK more
than fifteen years before the reform, about five percent of
them left every year, so forty five percent. That's pretty
high as a migration rate, but it is just that's
that's the background. There was a jump when that reform
took place in that first year from about five percent
(03:38):
to about ten percent, and then after that it actually
went down for a couple of years. And so the
first thing is, you know, people do respond to taxes.
That's the first thing to know. The second thing is
some of that response is people who were thinking of
leaving anyway bringing forward that decision, moving a bit earlier
than they would have otherwise because they were going to
leave it some year, and this just made them sit
down and concentrate on it. And the third thing to
say is that now then past forwarding that into what
(04:02):
happened in the most recent reform, we said, given what
we've seen in the past, given also what we know
about migration for shorter stayers, Because the question is should
you reduce the length of that regime. We said, there's
a good case for reducing the length of the tax
break that people had, which was fifteen years, to more
like five years, because after the first five years in
(04:22):
the UK, people who come to the UK aren't more
responsive in terms of income tax and capital gains tax.
They when you think about what's happening, So there's not
as much of a case for having a regime beyond
that point. So that's kind of the background to what
we had said looking at this area. The thing that
just one other thing to add then, is the thing
that's become controversial, as you said in this first pit,
is what's the impact of inheritance tax reform? That wasn't
(04:44):
part of a reform that we suggested, That wasn't part
of any of the work that we had done. And
so the question is, you know, how should we think
about inheritance tax reform as part of this wider piece.
Speaker 4 (04:55):
So I mean, yeah, so hang on a second, the
around this, and I wonder what your view is then,
do you actually think that there has been a significant
exodus of wealth? I mean, I thought it was interesting
that you put it in that long historical context. I mean,
one of the other major arguments around this too is
(05:16):
that the non dom regime as it currently stands, not
as it was invented hundreds of years ago, but that
it has become a bedrock for financial professional services in
the UK and a bedrock actually of the system that
keeps wealthy people here in the UK. That that is
important because they are job creators, investors, et cetera, et cetera.
(05:36):
Do you actually think that there has been a significant
exodus of wealth, bearing in mind that the real data
on non doms comes with a really big lag from
the authorities in the UK.
Speaker 1 (05:48):
Yeah, that's exactly the point. I mean, the only way
to really know what's happening to non doms is to
use the tax data, because the tax data is the
only place where you find out who is a non dom,
right literally the only place where you can find out.
And so there's an these studies that have been going
around using LinkedIn or something, and that's just not a
good way to learn anything.
Speaker 3 (06:04):
I know, the Bloomberg work that was looking at.
Speaker 1 (06:06):
Companies house data, and that was interesting to look at
the movement of wealthy people. But actually, what's really important
to remember the non dom regime, specifically the historic Nondon
regime gave a tax break, and even the new regime
gives a tax break for investments that people make as
long as they invest anywhere except the UK, like literally
anywhere but the UK you get a tax break. If
you invest in the UK, there's no tax break. So
(06:26):
these people who own companies in the UK, who you're
seeing in that data, that's really interesting to know about
how some wealthy people might be responding. But like almost
certainly those are not the nondoms, because if they were nondoms,
they wouldn't be choosing to invest directly in the UK
company because by doing that they were already exposed to
tax and there hasn't been a change in their tax
dat It's like their UK TAXI. Their UK investments were
already taxable and they're still just as taxable. So that's
(06:48):
why nondoms tend not to invest in the UK. But
the change in the regime won't have changed anything for
them on that basis because they were always taxable on
those investments. So it's interesting to look at, but it's
not how far i's to learned about.
Speaker 5 (06:58):
Non as, just on the issue of the inheritance tax,
but that's probably gonna raise about five hundred million pounds
a year. Pretty small beer, isn't it. Do you think
that was a mistake.
Speaker 1 (07:10):
The thing I've said, and i've said all along since
the inheritance tax bit was announced, which wasn't part of
any work that we'd ever done, is that the inheritance
tax number at forty percent, as the headline rate, sounds
big and scary, right like, it's a bigger number than
most countries have, even though we know that actually the
effective rate.
Speaker 3 (07:29):
That people pay is much lower.
Speaker 1 (07:31):
So if you take estates worth more than thirty million
pounds in the UK, the average I actually rate they're
paying the inheritance tax rate they're paying is something like
twelve percent, so much lower than that.
Speaker 3 (07:40):
But clearly, if you're moving to the UK and you.
Speaker 1 (07:41):
Don't know the system and you don't know all the
things that are there, or if you're living here and
you haven't been well advised, you wouldn't know that actually
you're not going to end up paying forty percent. And
so you might look at that and say, Okay, I've
been here nine years and I've got no inheritance tax,
and I get nine years through and sixty four days
no inheritance tax. I live one more day and I
get knocked over by a bus tomorrow, Suddenly I'm concerned
about forty percent rate. That big jump from zero up
(08:04):
for you nine years through and sixty four days to
forty percent with one more day. That doesn't seem like
a good way to a design a system that's such
a big salient jump in people's minds that they will
inevitably sit down and have that conversation think about should
I stay should I go? In a way that small
changes have that effect. So that isn't to say we
shouldn't have inheritance tax for people who've come from abroad.
(08:26):
The idea would just be that if you're going to
have it, you have to sort of step people into it, right.
Speaker 3 (08:29):
You have to make it more gradual.
Speaker 1 (08:30):
So after ten years you could then say, okay, now
you have say a four percent rate. After eleven years
you have an eight percent rate's's.
Speaker 3 (08:36):
Slowly going up.
Speaker 1 (08:37):
And each year when you're thinking should I stay one
more year, the chang there's a change. There's a cost,
but it's not as big, it's not as salient in
a way that makes you think this is so big.
Speaker 3 (08:45):
I'm not sure I want to engage with this.
Speaker 4 (08:47):
And the bottom line around the non dom issue though,
is always the calculation around whether it's going to end
up bringing in more money than previously or not, whether
it's going to help the government in its mission or not.
And that's the really difficult thing, isn't it. When you're
talking actually about a very few number of people who've
got you know, outsize wealth, that that might not be
(09:10):
the case. And again, you know, Bloomberg looking at this,
there is a concern actually that maybe we are getting
close to the tipping point where this policy around non
doms is going to end up costing the labor government
money rather than filling the coffers. And you know that
would be pretty terrible in terms of an outcome.
Speaker 1 (09:28):
Yeah, I don't think that when you are close to
that kind of thing, I'm it's worth saying, you know,
the even the abr's estimates were sort of twelve to
twenty five percent, depending on which bits you're looking at
of people responding, and even and with that baked in,
including that kind of size of effect, their estimate is
that you raised thirty three billion pounds, right so or
thirty four billion pounds. So they're saying even with that
big effect, and I think that's really important because I mean,
(09:51):
if you look at the previous reform I mentioned the
twenty seventeen reform, five percent of people left, ninety five
percent people stayed. For the ninety five percent of people
stayed at the individual level, their increase in tax was
something like fifty percent was huge, right, So there's a
lot of people who stay and.
Speaker 3 (10:05):
Pay a lot more money.
Speaker 1 (10:06):
So even when you are losing some people, everyone else
who's staying is paying a lot more. And that's that's
the overall effect of this regime, and that's worth bearing
in mind. So I think clearly some people will have
responded to this reform. Some people leave every year, but
some more people will have left, and they would have
done you know under any version, the under conservative version
of the reform or under the labor version perform the
labor version will have led slightly more people to respond,
(10:28):
but also more tax to be due from the people
who stay, And so you're balancing off that trade off.
But when you balance that trade off, you see that
when we look again looking at the best evidence we have,
which is what's happened in previous reforms. When we've made
tax changes for this kind of very wealthy group. The
people who respond the most are the ones who at
the start were paying the least tax in the.
Speaker 4 (10:48):
First place, If you is that the best evidence also
to look at it is the best evidence actually to
look comparatively across geographies and to see what other countries
are doing current in order to try to attract those
you know, because it's always it's shifting offers from different
parts of the world, from the Middle East, from Italy.
(11:09):
I mean, we've seen a lot of people, for example,
go to Milan, and that's the real time issue, isn't it.
Speaker 3 (11:18):
That's kind of the wrong way to think about it.
Speaker 1 (11:19):
I would say, in the sense that obviously Dubai is
super attractive and its tax rates.
Speaker 3 (11:24):
It has to be superttraction and it's tax rates.
Speaker 1 (11:26):
Because it doesn't have all of the other things that
London has, right, it doesn't have the thriving cultural environment,
it doesn't have the incredible schools, it doesn't have the
hugely amazing booming job market that we have. Even with
things to being a problem, it is still the case
that London pays pretty well. This side of the Atlantic.
You know, the US is a different matter, But the
US has its own problems right now, and so in
a sense, the reason that Dubai offers that kind of
(11:46):
rate is because it needs to do something to attract
people because it doesn't have something like London already. And
so I think it's sort of a mistake to think, well,
they're doing this on tax with through the same thing
and compete with them on tax, because they're having to
compete on tax because they don't have the other things.
Speaker 4 (12:00):
I mean, milas a body attractive place to live if
you think about Europe and they're doing something. But anyway, look,
I just wonder also whether then you think that there
is more to come. I mean, for example, were thinking
about the autumn budget and Rachel Reeves. I mean, for example,
I was speaking to Santander's investment banking chief UK economists
just today and she was saying, yes, there could well
(12:22):
be ten to fifteen billion that Rachel Reeves needs to
raise come the autumn. Do you think that there will
be more to get than from wealth taxes or from
CGT changes. I mean, I only notice note this because
your organization specializes in trying to tighten up these wealth loopholes,
and maybe those are there. You know, if you believe
(12:43):
in that, maybe that's that could happen.
Speaker 1 (12:46):
I mean, if you're going to make changes in the autumn,
some of the ones you should make are actually in
the other direction, right, So the non dom regime has
just been reformed for this sort of new drivers regime.
Speaker 3 (12:55):
But actually it's still left in place.
Speaker 1 (12:58):
This craziness the tax break you get is only for
investing abroad, Like if she's going to make a.
Speaker 3 (13:03):
Change to this area of tax.
Speaker 1 (13:05):
The change that Rachel needs to make is absolutely that
we should be giving a tax break for investments people
make in the UK as well as for investments they
make abroad, because that's the way that when we're wealthy
people choose to come here, they will not only come here,
but they will actually choose to invest here as well,
whereas right now we're encouraging them to come, but please
invest anywhere but the UK.
Speaker 3 (13:22):
So those are the kinds of changes we need to
look at.
Speaker 1 (13:23):
In a similar way, if we're going to look at
change the income tax system, some of the big problems
we have, some of the things that get really in
the way of growth and therefore in the way of
our overall tax take are things like the massive crazy
cliff edge at one hundred k, where you go a
pound over one hundred thousand pounds in income and you
can end up losing access.
Speaker 3 (13:41):
If you have small kids to childcare. That makes you
actually much worse off than you were if you stayed
just below that. And so you have people choosing not
to work more hours or choosing.
Speaker 1 (13:48):
Just to pile money into pensions in a way that
means that they're not being able to go and spend
it in the economy.
Speaker 3 (13:53):
In ways they're just not what we want people to do.
Speaker 1 (13:55):
And those things, you know, the average person on the
street might look at that and say, it's not my
problem one hundred k.
Speaker 3 (14:00):
You're doing pretty well off. Why are we complaining for you?
Speaker 1 (14:02):
But actually those people spending, those people choosing to work
more and go further up to the up the ladder
so that they're going to be and even more in
the future if you're paying tax, is actually really important
for that overall economy. So I'd say that if there
are changes coming, some of those are really important ones
to make, and by encouraging investment, by encouraging people to
earn more, those things actually will be good for the
(14:23):
overall tax take as well.
Speaker 5 (14:25):
Aaron, really nice to get your thoughts Aaron and Varney,
director of the Independent Center for the Analysis of Taxation.
Aaron just highlighting some of the multitudes in his problems
with the design of our taxes and which perhaps what
juries isn't even thinking about at the moment that she
tries to think about how you didn't get enough money
as we go through the rest of this year. But
interesting Bloomberg analysis as well on the number of non
(14:46):
doms leaving the country. We think are leaving the country,
but I don't think we quite yet no actual outturn
do we We don't, But.
Speaker 4 (14:52):
There's other evidence. And if you look at the property
market in London, you know you've seen very high end
home seeing an absolute nose dive in terms of the
number of exchanges of those properties and those property sales.
So there's evidence elsewhere. I mean also, we didn't even
get to the other end of the scale. What is
a working person reform UK? When I was speaking to
them in the last few months, you know they're sticking
(15:13):
to that idea of no tax on twenty thousand up
to twenty thousand pounds of earnings. It didn't even get
into whether or not that would net you more or
less in terms of your tax take. But our thanks
to Aaron for being with us. Right, that's it from
us for today. Thank you so much for listening. If
you like the program, don't forget to subscribe, give it
five cells so that other people can find it one
Apple Podcast, Spotify, or wherever you listen. This episode was
(15:36):
produced by James Wacock. Our audio engineer was Andrew Gavin.
I'm Caroline Hepkin and.
Speaker 5 (15:41):
I'm you and pottsable back with more next week. This
is Bloomberg.
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:09):
We inherited a complete mess at the election. Almost everything
was broken, the economy, public services, you name it.
Speaker 3 (00:18):
We have to take difficult right decisions in the budget.
Speaker 2 (00:22):
And that, if you like, was year one of this
labor government, which was clear up the mess, take the
difficult but necessary decisions. We're now very clearly moving into
sort of phase two, which is what the spending Review
ushers in, which is being clear what's the benefit from this,
what's the yield?
Speaker 4 (00:40):
So that was the Prime Minister kissed Dharma there defending
the non dom tax policy changes. In his exclusive interview
with Bloomberg's Michelle Hussein just last week, he says that
the government now wants to look at the yield. Is
the new tax regime making the government money? Hellos to
bl Berg UK Politics. I'm Caroline Hepke and I'm.
Speaker 3 (01:02):
I and Potts.
Speaker 5 (01:03):
Welcome to the program. According to the Office of Budget Responsibility,
those changes should meet the chance that almost thirty four
billion pounds over the next five years. But it's one
part of those tax changes that is causing a lot
of controversy, and that's the decision to immediately impose forty
percent inheritance tax on all overseas assets of those non
domicide residents.
Speaker 4 (01:24):
Well, we've reported on many of the wealthiest people leaving
the UK. Data compiled by Companies House that Bloomberg looked
at closely found evidence of an exodus of more than
four four hundred directors of UK businesses since last July
when Labor came to power, and that accelerated once the
non doms tax changes had been implemented. One of the
(01:48):
architects of the policy, though, now says that it was
a mistake, Aaron Advani as director of the Independent Center
for the Analysis of Taxation. He says that actually a
gradual approach would have stopped many of those super rich
from leaving Britain.
Speaker 5 (02:02):
Well, Aaron Advanti's with us on the show today. Aaron, Now,
you were quite involved with the design of all this,
weren't you. You put forward these proposals some time ago.
They haven't suddenly been cooked up in a short space
of time. What did you originally suggest to the government
with these non dom proposals.
Speaker 1 (02:17):
So we did the original analysis of the non don regime,
looking at the reform that George Osborn implemented back in
twenty seventeen to understand how mobile were non doms in
response to change and taxation. That's important because that's always
been the justification for, you know, why the regime should
stay in place. Originally, the regime was a tax break
that was given actually effectively by accident ins and so
(02:40):
it was created for a colonial reason. Back in seventeen
ninety nine, we had this thing called the remittance basis.
It was on the idea that you know, if I
have a sugar plantation somewhere in the Caribbean, I might
make some money from it, but until the money comes
on shore in the UK, I can't spend it.
Speaker 3 (02:53):
I didn't have MasterCard, I didn't have visa.
Speaker 1 (02:55):
And fast forward two hundred and twenty five years, this
regime was still in place, but it wasn't clearly it
wasn't having the same effect whereas before it was a
deferral of taxation until the money came on Sure, now
this has become a complete exemption. And for the last
twenty thirty years, every time the question came up, people said, ah,
but maybe everyone will leave. So the twenty seventeen reform
was really interesting because it gave us a chance to
say for people who'd been here more than fifteen years,
(03:18):
they lost access to the regime. What was the impact
of that? What was always that some people did leave.
So typically for people who'd been in the UK more
than fifteen years before the reform, about five percent of
them left every year, so forty five percent. That's pretty
high as a migration rate, but it is just that's
that's the background. There was a jump when that reform
took place in that first year from about five percent
(03:38):
to about ten percent, and then after that it actually
went down for a couple of years. And so the
first thing is, you know, people do respond to taxes.
That's the first thing to know. The second thing is
some of that response is people who were thinking of
leaving anyway bringing forward that decision, moving a bit earlier
than they would have otherwise because they were going to
leave it some year, and this just made them sit
down and concentrate on it. And the third thing to
say is that now then past forwarding that into what
(04:02):
happened in the most recent reform, we said, given what
we've seen in the past, given also what we know
about migration for shorter stayers, Because the question is should
you reduce the length of that regime. We said, there's
a good case for reducing the length of the tax
break that people had, which was fifteen years, to more
like five years, because after the first five years in
(04:22):
the UK, people who come to the UK aren't more
responsive in terms of income tax and capital gains tax.
They when you think about what's happening, So there's not
as much of a case for having a regime beyond
that point. So that's kind of the background to what
we had said looking at this area. The thing that
just one other thing to add then, is the thing
that's become controversial, as you said in this first pit,
is what's the impact of inheritance tax reform? That wasn't
(04:44):
part of a reform that we suggested, That wasn't part
of any of the work that we had done. And
so the question is, you know, how should we think
about inheritance tax reform as part of this wider piece.
Speaker 4 (04:55):
So I mean, yeah, so hang on a second, the
around this, and I wonder what your view is then,
do you actually think that there has been a significant
exodus of wealth? I mean, I thought it was interesting
that you put it in that long historical context. I mean,
one of the other major arguments around this too is
(05:16):
that the non dom regime as it currently stands, not
as it was invented hundreds of years ago, but that
it has become a bedrock for financial professional services in
the UK and a bedrock actually of the system that
keeps wealthy people here in the UK. That that is
important because they are job creators, investors, et cetera, et cetera.
(05:36):
Do you actually think that there has been a significant
exodus of wealth, bearing in mind that the real data
on non doms comes with a really big lag from
the authorities in the UK.
Speaker 1 (05:48):
Yeah, that's exactly the point. I mean, the only way
to really know what's happening to non doms is to
use the tax data, because the tax data is the
only place where you find out who is a non dom,
right literally the only place where you can find out.
And so there's an these studies that have been going
around using LinkedIn or something, and that's just not a
good way to learn anything.
Speaker 3 (06:04):
I know, the Bloomberg work that was looking at.
Speaker 1 (06:06):
Companies house data, and that was interesting to look at
the movement of wealthy people. But actually, what's really important
to remember the non dom regime, specifically the historic Nondon
regime gave a tax break, and even the new regime
gives a tax break for investments that people make as
long as they invest anywhere except the UK, like literally
anywhere but the UK you get a tax break. If
you invest in the UK, there's no tax break. So
(06:26):
these people who own companies in the UK, who you're
seeing in that data, that's really interesting to know about
how some wealthy people might be responding. But like almost
certainly those are not the nondoms, because if they were nondoms,
they wouldn't be choosing to invest directly in the UK
company because by doing that they were already exposed to
tax and there hasn't been a change in their tax
dat It's like their UK TAXI. Their UK investments were
already taxable and they're still just as taxable. So that's
(06:48):
why nondoms tend not to invest in the UK. But
the change in the regime won't have changed anything for
them on that basis because they were always taxable on
those investments. So it's interesting to look at, but it's
not how far i's to learned about.
Speaker 5 (06:58):
Non as, just on the issue of the inheritance tax,
but that's probably gonna raise about five hundred million pounds
a year. Pretty small beer, isn't it. Do you think
that was a mistake.
Speaker 1 (07:10):
The thing I've said, and i've said all along since
the inheritance tax bit was announced, which wasn't part of
any work that we'd ever done, is that the inheritance
tax number at forty percent, as the headline rate, sounds
big and scary, right like, it's a bigger number than
most countries have, even though we know that actually the
effective rate.
Speaker 3 (07:29):
That people pay is much lower.
Speaker 1 (07:31):
So if you take estates worth more than thirty million
pounds in the UK, the average I actually rate they're
paying the inheritance tax rate they're paying is something like
twelve percent, so much lower than that.
Speaker 3 (07:40):
But clearly, if you're moving to the UK and you.
Speaker 1 (07:41):
Don't know the system and you don't know all the
things that are there, or if you're living here and
you haven't been well advised, you wouldn't know that actually
you're not going to end up paying forty percent. And
so you might look at that and say, Okay, I've
been here nine years and I've got no inheritance tax,
and I get nine years through and sixty four days
no inheritance tax. I live one more day and I
get knocked over by a bus tomorrow, Suddenly I'm concerned
about forty percent rate. That big jump from zero up
(08:04):
for you nine years through and sixty four days to
forty percent with one more day. That doesn't seem like
a good way to a design a system that's such
a big salient jump in people's minds that they will
inevitably sit down and have that conversation think about should
I stay should I go? In a way that small
changes have that effect. So that isn't to say we
shouldn't have inheritance tax for people who've come from abroad.
(08:26):
The idea would just be that if you're going to
have it, you have to sort of step people into it, right.
Speaker 3 (08:29):
You have to make it more gradual.
Speaker 1 (08:30):
So after ten years you could then say, okay, now
you have say a four percent rate. After eleven years
you have an eight percent rate's's.
Speaker 3 (08:36):
Slowly going up.
Speaker 1 (08:37):
And each year when you're thinking should I stay one
more year, the chang there's a change. There's a cost,
but it's not as big, it's not as salient in
a way that makes you think this is so big.
Speaker 3 (08:45):
I'm not sure I want to engage with this.
Speaker 4 (08:47):
And the bottom line around the non dom issue though,
is always the calculation around whether it's going to end
up bringing in more money than previously or not, whether
it's going to help the government in its mission or not.
And that's the really difficult thing, isn't it. When you're
talking actually about a very few number of people who've
got you know, outsize wealth, that that might not be
(09:10):
the case. And again, you know, Bloomberg looking at this,
there is a concern actually that maybe we are getting
close to the tipping point where this policy around non
doms is going to end up costing the labor government
money rather than filling the coffers. And you know that
would be pretty terrible in terms of an outcome.
Speaker 1 (09:28):
Yeah, I don't think that when you are close to
that kind of thing, I'm it's worth saying, you know,
the even the abr's estimates were sort of twelve to
twenty five percent, depending on which bits you're looking at
of people responding, and even and with that baked in,
including that kind of size of effect, their estimate is
that you raised thirty three billion pounds, right so or
thirty four billion pounds. So they're saying even with that
big effect, and I think that's really important because I mean,
(09:51):
if you look at the previous reform I mentioned the
twenty seventeen reform, five percent of people left, ninety five
percent people stayed. For the ninety five percent of people
stayed at the individual level, their increase in tax was
something like fifty percent was huge, right, So there's a
lot of people who stay and.
Speaker 3 (10:05):
Pay a lot more money.
Speaker 1 (10:06):
So even when you are losing some people, everyone else
who's staying is paying a lot more. And that's that's
the overall effect of this regime, and that's worth bearing
in mind. So I think clearly some people will have
responded to this reform. Some people leave every year, but
some more people will have left, and they would have
done you know under any version, the under conservative version
of the reform or under the labor version perform the
labor version will have led slightly more people to respond,
(10:28):
but also more tax to be due from the people
who stay, And so you're balancing off that trade off.
But when you balance that trade off, you see that
when we look again looking at the best evidence we have,
which is what's happened in previous reforms. When we've made
tax changes for this kind of very wealthy group. The
people who respond the most are the ones who at
the start were paying the least tax in the.
Speaker 4 (10:48):
First place, If you is that the best evidence also
to look at it is the best evidence actually to
look comparatively across geographies and to see what other countries
are doing current in order to try to attract those
you know, because it's always it's shifting offers from different
parts of the world, from the Middle East, from Italy.
(11:09):
I mean, we've seen a lot of people, for example,
go to Milan, and that's the real time issue, isn't it.
Speaker 3 (11:18):
That's kind of the wrong way to think about it.
Speaker 1 (11:19):
I would say, in the sense that obviously Dubai is
super attractive and its tax rates.
Speaker 3 (11:24):
It has to be superttraction and it's tax rates.
Speaker 1 (11:26):
Because it doesn't have all of the other things that
London has, right, it doesn't have the thriving cultural environment,
it doesn't have the incredible schools, it doesn't have the
hugely amazing booming job market that we have. Even with
things to being a problem, it is still the case
that London pays pretty well. This side of the Atlantic.
You know, the US is a different matter, But the
US has its own problems right now, and so in
a sense, the reason that Dubai offers that kind of
(11:46):
rate is because it needs to do something to attract
people because it doesn't have something like London already. And
so I think it's sort of a mistake to think, well,
they're doing this on tax with through the same thing
and compete with them on tax, because they're having to
compete on tax because they don't have the other things.
Speaker 4 (12:00):
I mean, milas a body attractive place to live if
you think about Europe and they're doing something. But anyway, look,
I just wonder also whether then you think that there
is more to come. I mean, for example, were thinking
about the autumn budget and Rachel Reeves. I mean, for example,
I was speaking to Santander's investment banking chief UK economists
just today and she was saying, yes, there could well
(12:22):
be ten to fifteen billion that Rachel Reeves needs to
raise come the autumn. Do you think that there will
be more to get than from wealth taxes or from
CGT changes. I mean, I only notice note this because
your organization specializes in trying to tighten up these wealth loopholes,
and maybe those are there. You know, if you believe
(12:43):
in that, maybe that's that could happen.
Speaker 1 (12:46):
I mean, if you're going to make changes in the autumn,
some of the ones you should make are actually in
the other direction, right, So the non dom regime has
just been reformed for this sort of new drivers regime.
Speaker 3 (12:55):
But actually it's still left in place.
Speaker 1 (12:58):
This craziness the tax break you get is only for
investing abroad, Like if she's going to make a.
Speaker 3 (13:03):
Change to this area of tax.
Speaker 1 (13:05):
The change that Rachel needs to make is absolutely that
we should be giving a tax break for investments people
make in the UK as well as for investments they
make abroad, because that's the way that when we're wealthy
people choose to come here, they will not only come here,
but they will actually choose to invest here as well,
whereas right now we're encouraging them to come, but please
invest anywhere but the UK.
Speaker 3 (13:22):
So those are the kinds of changes we need to
look at.
Speaker 1 (13:23):
In a similar way, if we're going to look at
change the income tax system, some of the big problems
we have, some of the things that get really in
the way of growth and therefore in the way of
our overall tax take are things like the massive crazy
cliff edge at one hundred k, where you go a
pound over one hundred thousand pounds in income and you
can end up losing access.
Speaker 3 (13:41):
If you have small kids to childcare. That makes you
actually much worse off than you were if you stayed
just below that. And so you have people choosing not
to work more hours or choosing.
Speaker 1 (13:48):
Just to pile money into pensions in a way that
means that they're not being able to go and spend
it in the economy.
Speaker 3 (13:53):
In ways they're just not what we want people to do.
Speaker 1 (13:55):
And those things, you know, the average person on the
street might look at that and say, it's not my
problem one hundred k.
Speaker 3 (14:00):
You're doing pretty well off. Why are we complaining for you?
Speaker 1 (14:02):
But actually those people spending, those people choosing to work
more and go further up to the up the ladder
so that they're going to be and even more in
the future if you're paying tax, is actually really important
for that overall economy. So I'd say that if there
are changes coming, some of those are really important ones
to make, and by encouraging investment, by encouraging people to
earn more, those things actually will be good for the
(14:23):
overall tax take as well.
Speaker 5 (14:25):
Aaron, really nice to get your thoughts Aaron and Varney,
director of the Independent Center for the Analysis of Taxation.
Aaron just highlighting some of the multitudes in his problems
with the design of our taxes and which perhaps what
juries isn't even thinking about at the moment that she
tries to think about how you didn't get enough money
as we go through the rest of this year. But
interesting Bloomberg analysis as well on the number of non
(14:46):
doms leaving the country. We think are leaving the country,
but I don't think we quite yet no actual outturn
do we We don't, But.
Speaker 4 (14:52):
There's other evidence. And if you look at the property
market in London, you know you've seen very high end
home seeing an absolute nose dive in terms of the
number of exchanges of those properties and those property sales.
So there's evidence elsewhere. I mean also, we didn't even
get to the other end of the scale. What is
a working person reform UK? When I was speaking to
them in the last few months, you know they're sticking
(15:13):
to that idea of no tax on twenty thousand up
to twenty thousand pounds of earnings. It didn't even get
into whether or not that would net you more or
less in terms of your tax take. But our thanks
to Aaron for being with us. Right, that's it from
us for today. Thank you so much for listening. If
you like the program, don't forget to subscribe, give it
five cells so that other people can find it one
Apple Podcast, Spotify, or wherever you listen. This episode was
(15:36):
produced by James Wacock. Our audio engineer was Andrew Gavin.
I'm Caroline Hepkin and.
Speaker 5 (15:41):
I'm you and pottsable back with more next week. This
is Bloomberg.
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