Labour’s non-domicile policy was a pivotal aspect of their electoral agenda – pledging to allocate £1bn annually to support NHS services, dental visits, and school breakfast initiatives.
Chancellor Rachel Reeves reiterated her commitment to closing the “loopholes” during this week’s party conference in Liverpool.
Prime Minister Sir Keir Starmer emphasized they were pursuing this change because “those with the greatest means should shoulder the greater responsibility,” advocating for fair distribution of the burden.
However, reports now suggest Ms Reeves might lessen the severity of the crackdown due to apprehensions that the initiative will not generate the anticipated revenue.
Concerns have emerged that the Office for Budget Responsibility, which provides independent assessments of each policy, may project significantly lower earnings than expected—if any at all.
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“Non-dom” is an abbreviation for “non-domiciled individual,” specifically referring to the tax status of individuals residing in the UK but maintaining their permanent home in another country.
The Treasury refrained from commenting on budget projections but asserted its dedication to abolishing the “outdated” non-dom tax framework and attracting talent and investment to the UK. Labour’s budget presentation is scheduled for 30 October.
Following the removal of non-dom tax exemptions by former chancellor Jeremy Hunt in his final budget in March, Labour vowed to go further, introducing a “full fat” option instead of a “semi-skimmed” version, as stated by an insider.
The loopholes identified included eliminating a 50% tax reprieve in the initial year, designed to incentivize investment; and subjecting funds placed in trusts to UK inheritance tax.
Affluent non-doms relocating abroad
Experts have cautioned the Treasury in discussions that these changes are already prompting affluent non-doms to seek alternatives in other countries.
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Lesley Macleod Miller, head of Foreign Investors for Britain, which has commissioned research into the policy, informed Sky News: “We are very encouraged that the Treasury seems to be receptive.
“Our analysis indicates that instead of generating revenue, the Treasury may suffer losses of up to £1bn annually for generations to come. This would exacerbate the existing £22bn deficit the government faces.
“They need to grasp that these individuals can establish themselves anywhere. They might reside in Switzerland, Italy, or Greece. And these nations are signaling ‘if you’re not welcome in the UK, migrate to us, and bring your investments’.”
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Arun Advani, director of the Centre for the Analysis of Taxation and an associate professor of economics at the University of Warwick, stated that many individuals are unlikely to abandon London, housing the majority of non-doms, due to its robust financial sector.
He further mentioned that the abrupt obligation to pay full inheritance tax after a decade could be mitigated to encourage their long-term residence. “Exactly at nine years and 364 days, an unexpected 40% tax is imposed, which could deter a number of people.”
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Taxing non-doms has emerged as a central tenet for the new administration.
However, in light of the discontent regarding the withdrawal of winter fuel allowance for all but the most vulnerable retirees, the upcoming budget represents a crucial opportunity to demonstrate that sacrifices are being equitably distributed.
Government officials will need to proceed with caution.
