What Are the Concerns Over Potential Loss of Revenue?
The Treasury is reevaluating parts of Labour’s manifesto plan to toughen the abolition of non-domicile tax status due to rising concerns regarding how much revenue will be generated if wealthy foreigners leave the UK. A “non-dom” refers to a UK resident whose permanent home—or domicile—is outside the UK for tax purposes.
While no specific policy has yet been submitted to the Office of Budget Responsibility (OBR) as part of the ongoing Budget process, Treasury officials have expressed reservations. They acknowledge that scrapping two concessions made by the previous government might not yield the anticipated £1 billion in revenue—or even any revenue.
What Are the Financial Implications for Public Services?
The £1 billion figure is earmarked in the Labour manifesto for essential services, including additional hospital and dental appointments and the provision of school breakfast clubs. The issue arises from the concessions implemented when the non-dom scheme was unexpectedly scrapped, designed to minimize the incentive for wealthy foreigners with a permanent home abroad to emigrate.
According to estimates, about half of the money expected to be raised from the broader abolition plan is forecasted to be lost due to behavioral changes among those affected by the new regulations. The OBR assessed the potential revenue as “highly uncertain,” prompting further scrutiny.
How Might Changing Assumptions About Emigration Affect Revenue?
Minor changes to assumptions regarding emigration could significantly impact the revenue projections. “If we assume that several high-net-worth individuals decide to leave the UK, the planned additional tightening of the non-dom scheme may yield very little revenue,” said a Treasury official. While no final decisions have been made, officials are contemplating a potential watering down or phasing in certain aspects, such as applying inheritance tax to trusts and offering a discount on bringing in foreign income next year.
What Is the Treasury's Commitment to Revenue Generation?
The Treasury maintains that further modifications to the non-dom regime should demonstrably raise revenue. However, officials confirm that non-dom status will still be abolished. “We must ensure that any adjustments made will lead to increased revenue without compromising the integrity of our tax system,” the official added.
What Is Non-Domicile Tax Status?
So, what exactly is a non-dom? Non-dom refers to an individual’s tax status and is not directly linked to nationality, citizenship, or resident status—though these factors can influence it. A non-dom only pays UK tax on the income they earn within the UK. They are not required to pay tax to the UK government on income generated elsewhere in the world unless that money is deposited into a UK bank account.
This tax status provides an opportunity for substantial—and entirely legal—savings for affluent individuals, mainly if they designate a lower-tax country as their domicile. One of the most notable non-doms is Akshata Murty, the wife of former Prime Minister Rishi Sunak. After her tax status became public, she stated, “I will begin paying UK tax on my earnings generated outside the UK.”
What Are the Broader Implications of These Developments?
The implications for wealthy individuals and public services remain significant as the Treasury navigates these complex non-domicile tax status issues. The conversation continues as officials balance tax reforms with the UK’s need for sustained revenue generation.
