Labour’s non-dom pledge would ‘reduce UK’s attractiveness to 'internationally mobile professionals’,

Shadow chancellor Rachel Reeves told the BBC on Monday that a Labour government would end outdated tax perks, saying: “We need to do more to crackdown on some of the loopholes, which mean some of the wealthiest in society aren’t paying their fair share of tax … If you make Britain your home, you should be paying your taxes here.”

Reeves’s pledge came after the furore earlier this month over the domicile of chancellor Rishi Sunak’s wife. Akshata Murty claimed non-dom status through her billionaire father, Narayana Murty, who founded the Indian multinational IT company Infosys – a move the BBC estimated saved her £2.1m a year in UK tax on dividend payments from her shares in the company.

However, while some on Twitter challenged the language used around Labour’s proposal – arguing Labour would not be ‘abolishing’ non-dom status as widely reported, but rather replacing the current rules with a shorter-term scheme for temporary residents for up to five years (instead of the current 15 years) – some tax experts challenged whether it was a good move at all.

Tim Walford-Fitzgerald, partner at accountancy firm HW Fisher said that “in reality, the practical impact of this announcement is limited”, adding not all non-doms were “the very wealthy” and that the remittance basis “still has a place in the UK tax system”, and limiting its scope below the current 15 years “risks overlooking the human element in the decision-making process” – an example of which, he said, was that the 15 years currently available broadly matches the time taken for children to pass through the UK school system … “a commonly cited trigger point for a non-dom family to leave the UK [so] shortening this period may result in difficult family decisions being made”.

“The mechanism already exists to remove access to the remittance basis after 15 years of UK residence,” Walford-Fitzgerald added. The UK gives credit for overseas taxes that have been paid on the same income or gain, so the Treasury would only receive tax in excess of the withholding tax that the overseas country takes before the income leaves their jurisdiction.

The remittance basis, he added, does not allow for all tax on overseas income and gains to be avoided: after seven years in the UK there is a charge of £30,000 per year, rising to £60,000 after 12 years, and “any monies used or enjoyed in the UK are taxable here, even after the sheltered period has ended”.

“If Labour is worried about the fairness of the current system, moving to another unfair system does not seem to be the solution,” RSM private client partner Rachel de Souza said, adding the latest official statistics showed 75,700 people claimed the remittance basis of taxation (i.e. were non-doms) in 2019/20, and those individuals paid £7.8bn in UK taxes –an average of over £100,000 in taxes per non-dom. Reports of £1bn in taxes being saved by non-doms, she said, “must be taken with a pinch of salt” – with overseas income and capital gains not reported by non-doms, any estimate of tax savings are “a guess” – and “the tax take will not necessarily rise by £1bn if the non-dom regime is abolished [and may even] reduce the amount of tax paid by non-doms.”

“Countries have always used differential tax regimes to encourage immigration and tax systems are becoming more sophisticated as people become more internationally mobile,” de Souza added. “Many European countries have introduced some kind of preferential tax regime in recent years – Italy has a €100,000 lump sum tax regime; immigrants can pay as little as 7% income tax in Greece; Portugal has its Non-Habitual Residence Regime and Spain has its so-called Beckham rules, both of which broadly exempt foreign income and gains entirely from tax, to name a few.”

Governments across the globe, she concluded, are actively using different tax rules to encourage certain types of immigrants by creating preferential tax systems. “It may be deemed unfair for non-doms to pay less tax in the UK than everyone else, but the UK is effectively competing with other countries to attract immigrants, and preferential tax rates are influential in considering where people choose to go.”