Non-dom crackdown: Fears it will fail to raise cash and actually cost the UK money
Officials fear that the government’s plan to close loopholes in the non-dom tax regime might fail to raise any extra revenue at all, according to reports.
A report in the Guardian suggests officials at the Office for Budget Responsibility (OBR) are concerned Labour’s plans to close some of the remaining tax loopholes on non-doms could end up costing the government money.
That’s because changes to the tax regime might encourage non-doms to leave or limit their time in the UK to avoid paying the tax, limiting the tax base.
Last year around 74,000 people were classified as non-doms, a 200-year old tax scheme that allows wealthy foreigners to lay down roots in the UK without having to pay tax on their overseas income and assets.
Phasing out the non-dom status was originally a Labour policy, but the measure was adopted by Jeremy Hunt in March to help fund his national insurance cuts.
The government wants to go further by removing a 50 per cent discount which exists in the first year of the new rules while also making inheritance tax payable on foreign assets held in a trust.
It reckons that this would raise an extra £1bn to be spent on public services.
But many economists have been sceptical about the potential impact of the measure due to the mobility of non-doms.
According to the Financial Times, Treasury analysis conducted while the Conservatives were still in office suggested that removing protections from inheritance tax would only raise £50-£100m per year.
A recent study from Oxford Economics, which polled 72 non-doms and over 50 tax advisors, found nearly two thirds of people with the tax status are planning to leave the UK within the next two years.
Its survey suggested that the plans would end up costing the taxpayer around £1bn by the end of the parliamentary term while also harming international investment.
However, other economists are dubious about the prospect of a non-dom exodus while Chancellor Reeves is reportedly keen to make the moral case for the contribution that the wealthy should make.
An HM Treasury spokesperson said the reports were “purely speculation”, confirming that the OBR would “certify the costings of all measures announced at the Budget in the usual way.”
“We are committed to addressing unfairness in the tax system, which is why we are removing the outdated non-dom tax regime so we can raise the revenue needed to rebuild our public services, and replacing it with a new internationally competitive residence-based regime focused on attracting the best talent and investment to the UK,” they said.