The Treasury is having second thoughts about implementing some aspects of Labour’s manifesto to toughen up the abolition of non-domicile tax status. This is due to concerns about whether enough revenue will be generated if wealthy foreigners leave the UK. A non-dom refers to a UK resident whose permanent home – or domicile – for tax purposes is outside the UK. The £1bn earmarked in the Labour manifesto for extra hospital and dental appointments and school breakfast clubs might not be raised if the concessions made by the previous government are scrapped.
There are fears that the concessions designed to reduce the incentive for wealthy foreigners with a permanent home abroad to emigrate, which were made when Jeremy Hunt unexpectedly scrapped the non-dom scheme, have affected the plan. More than half of the money raised from the wider abolition plan was already expected to be lost in changes of behaviour. The revenue raised was assessed by the OBR in March to be highly uncertain. This means that small changes to assumptions about emigration could mean the additional tightening of the plan may actually raise very little.
No final decisions have been made, but there are talks of a possible watering down or phasing in of the decision to apply inheritance tax to trusts, and a discount on bringing in foreign income next year. However, the Treasury is insistent that any changes must effectively raise money and that non-dom status in general will still be abolished. Non-dom only pays UK tax on the money they earn in the UK, which presents a significant – and entirely legal – saving opportunity for many individuals. One of the most well-known non-doms is Rishi Sunak’s wife Akshata Murty
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