The crackdown on non-doms is set to be a huge blow to the UK economy, leaving it billions of pounds worse off over the next few years, a new report by a think tank suggested.

Scrapping the tax could result in over a quarter of the UK’s 21,000 non-doms moving overseas, costing the economy £600m per year in lost GDP by 2030. This would increase to £1.3bn a year by 2035, a total loss of £6.52bn over the next decade, the report said.

A non-dom describes a UK resident whose permanent home, or domicile, for tax purposes is outside of the UK. This means that some individuals do not have to pay taxes to the government on money made anywhere else in the world.

The report by the Adam Smith Institute (ASI) suggests the loss of investment and consumption from non-doms will wipe out jobs and cost the country a significant amount of money.

Chancellor Rachel Reeves is believed to now be considering a softer version of Jeremy Hunt’s proposed overhaul of the system.

In March’s spring budget, Mr Hunt planned to replace the tax with foreign income and gains regime (FIG) that will still let individuals who come to the UK avoid paying UK tax on overseas earnings, but only for four years.

Following this, Labour pledged in their manifesto to go one step further and shut down non-dom-linked inheritance tax breaks. They claimed this would raise £5.2bn for the UK by 2028-2029.

However, amid fear that extreme crackdown will create an exodus of wealthy individuals whose money is needed for the UK economy, Ms Reeves is now rowing back on their manifesto promise.

Another key factor that could drive the wealthy non-doms away is the higher taxes on higher earnings. Jeremy Hunt extended the period of threshold freezes until 2027-2028 which has put people with increased earnings at a higher threshold.

The ASI’s research director Maxwell Marlow and co-author of the report said, as reported by the Telegraph: “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.”

The think tank has proposed a flat tax charge of £150,000 on non-dom wealth instead. They say it would raise £12.45bn a year in tax revenues while attracting more non-doms to the UK.

Countries in Europe offer similar flat fees. Switzerland, Spain, and Italy introduced a flat tax charge of €100,000 (£85,500) on all foreign income.