How much ending non-dom tax break could raise for UK
The Chancellor Jemery Hunt announced he is scrapping the non-dom tax status in Wednesday’s Budget, telling the House of Commons he will replace it with a “fairer” system.
The scheme was mired in controversy in 2022 after reports the Prime Minister’s wife may have avoided up to £20m in tax by being non-domiciled in the UK.
While Akshata Murty gave up her non-dom status later that year, Labour pledged to get rid of the scheme to raise funds for the NHS.
Before Mr Hunt announced the Conservatives would adopt the same policy as part of his Budget, he took a swipe at Labour, claiming the opposition had taken the idea from Nigel Lawson’s “great tax-reforming budget of 1988”.
The Chancellor added how he had decided to scrap the scheme after “looking at the issue over many months”.
He added: “I have concluded that we can indeed introduce a system which is both fairer and remains competitive with other countries.
“The Government will abolish the current tax system for non-doms, get rid of the outdated concept of domicile and the remittance basis in the tax system, and replace it with a modern, simpler and fairer residency-based system.”
Mr Hunt said that, from April 2025, it will not be compulsory for new arrivals to the UK to pay any tax on foreign income and capital gains for their first four years of UK residency.
What is the non-dom tax status?
Non-dom status is only available to British residents who claim that their “domicile” – the centre of their personal and financial interests – is outside the UK. They must be able to demonstrate this to HMRC.
So-called “non-dom” status can be claimed by anyone who was born abroad, or whose father was, and who has lived in the UK for less than 15 years.
If you have non-dom status, you do not pay UK tax on your foreign income if it is under £2,000 a year and it is not brought into the country.
People whose foreign income is more than £2,000 must report it in a tax return. You then have a choice of paying UK tax on it, or claiming what is known as the “remittance basis”.
Claiming the remittance basis means you only pay UK tax on the income or gains you bring to the UK, and you must pay an annual charge if you have been living in the UK for a certain amount of time.
According to official figures, there were 68,800 non-doms in Britain in the year ending 2022.
How much will be raised by axeing it?
Reports in The Telegraph and The Times suggest that scrapping the non-domiciled tax regime will raise an estimated £3.6bn a year.
A 2022 report by the London School of Economics (LSE), however, claimed it will raise just £3.2bn a year, with around £10.9bn in off-shore income currently not being taxed due to non-dom status.
The same report also found that past tightening of the rules around non-doms had led to very few – just 0.2 per cent – leaving the UK as a result.
How has Labour responded?
The Chancellor’s decision is expected to rile members of the Opposition, who have now had one of their very few flagship tax policies taken from them.
Responding to the Budget in the House of Commons, Sir Keir Starmer said the Conservatives are “bereft of ideas” and asked why the Tories had not supported their plans earlier.
Regardless, Starmer’s party will now have to find a new way to help fund public service reforms.
Why has Hunt decided to scrap non-dom status?
Non-dom status has been controversial as it mostly benefits people who are very rich. It allows UK residents to potentially make huge sums of money, while paying very little – or even nothing at all – in UK taxes.
The 2022 study by LSE and a separate paper from the University of Warwick found that more than two-fifths of people who earned £5m or more in 2018 had claimed non-dom status at some point since 1997.
The scrappage is likely to be popular among the electorate, with the majority of UK adults recorded as supporting its disposal.
It will also go some way to cover some of the tax cuts Mr Hunt announced in the Budget – such as a 2p cut to national insurance contributions.
It will not go all the way though, as cuts to national insurance will cost the Treasury around £10bn a year.
