Scrapping non-dom status will make some of London a ghost town
If we start taxing non-UK income and assets, we may as well pack non-doms bags for them. There is a better way, says Steve Rigby
Are the leaks suggesting Jeremy Hunt is ready to scrap tax rules for non-doms to be taken seriously? Or was this one of the now-traditional pre-Budget exercises in kite-flying to see how a controversial policy will be received?
In a way, it doesn’t matter. Whether or not there is an announcement in the Budget, it is now likely that reform is on its way for a system originally designed for the colonial era.
Labour plans to abolish the regime altogether, making non-doms, on the surface at least, a rare issue of cross-party consensus. It is debatable whether the Conservatives’ new found admiration for Labour’s ideas comes down to economic necessity or political expediency – but again, it doesn’t really matter. Non-doms are in the line of fire.
It is not before time. There has not been a proper review of non-dom rules since 2008 and the time is right for tactful, considered reform.
However, the present or future Chancellor must be careful. Unless we want to risk losing top talent and a significant source of tax revenue, we can’t afford to be heavy-handed about change. A considered, progressive approach to non-doms, driven by the principle of mutual benefits, should be the goal.
This is especially true in London, because any changes to the non-dom regime will disproportionately affect the capital. Numbering about 55,200 people, non-dom citizens make up about 0.08% of the population. Highly centred in London, this small group attracts a lot of attention – not least in the restaurants of Mayfair and Chelsea.
Non-doms hold an estimated £10.9bn in income and gains overseas. If the tax breaks are scrapped, this sum becomes fair game for the exchequer. While raiding non-doms might seem like a silver bullet for reviving the UK economy – Labour plans to use the windfall to fund much of its public spending plans – we must be careful not to cause a mass exodus. If we set about taxing non-UK income and assets, we might as well be packing non-doms’ bags for them. Parts of London will become a well-heeled ghost town. That £10.9bn figure will dwindle significantly and the reform becomes a pointless exercise.
There is a middle ground, though, and Europe provides a non-dom ‘cheat sheet’. Italy isn’t best known for its tax efficiency, but in 2020, the Italian government introduced an Investors Visa, allowing foreign nationals to pay a €100,000 lump sum in tax per year and a further €25,000 per family member for a period of 15 years. It’s early days, but in the first two published years of residents joining, over 2,000 people opted into this regime.
Portugal is another good example. Its now-retired Golden Visa scheme attracted 12,400 non-doms and another 20,400 family members – driving €7.3bn back into the country’s economy. Meanwhile, Switzerland has long offered a forfait regime to attract wealthy foreign citizens by charging a means-tested tax for each resident based on the rental value of Swiss property.
Non-doms have become politically charged and change is coming to a regime that is no longer fit for purpose. But for the future of the economy in London and across the UK, the Chancellor must avoid doing more harm than good.
Steve Rigby is co-CEO of Rigby Group PLC