Labour’s Non-Dom Crackdown in Doubt: Economic Impact and Political Backlash Loom

Labour's proposal to tighten regulations on non-domiciled individuals may be diluted due to worries that it won't generate revenue. It is believed that the Office for Budget Responsibility, which evaluates each policy independently, might report that the expected revenue could be significantly lower than initially anticipated, or possibly non-existent.

Political reporter @tamcohen

Friday, September 27, 2024, at 9

Labour's policy on non-domiciled residents was a key focus during the election, pledging to allocate the £1 billion annual revenue towards supporting NHS and dental services, as well as school breakfast programs.

At the party's yearly gathering in Liverpool, Chancellor Rachel Reeves pledged to close the "loopholes" once more.

Prime Minister Sir Keir Starmer stated that this action is being taken because "the strongest should carry the greatest weight." He emphasized that the hardships ahead would be distributed fairly.

It is now being suggested that Ms. Reeves might scale back the stringent measures due to worries that the policy may not generate the anticipated revenue.

It is reported that there are worries the Office for Budget Responsibility, known for its independent evaluations of each policy, might announce that the expected revenue from the policy could be significantly lower than initially projected, or possibly none at all.

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"Non-dom" is an abbreviation for "non-domiciled individual," which describes someone who lives in the UK but has their permanent residence in another country.

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The Treasury declined to speculate on budgetary matters, however, it emphasized its dedication to phasing out the "antiquated" non-dom tax system and to drawing both talent and investment to the UK. The Labour Party's budget announcement is scheduled for October 30.

Following the elimination of non-dom tax advantages by former chancellor Jeremy Hunt in his last budget this March, Labour has declared intentions to implement a more comprehensive approach, going beyond the "semi-skimmed" version to a "full fat" one, according to a source.

The gaps they pinpointed included eliminating a first-year 50% tax reduction designed to boost investment, and subjecting funds held in trusts to UK inheritance tax.

Affluent non-residents relocating overseas

Authorities have cautioned in discussions with the Treasury that these measures are prompting affluent non-doms to relocate to other countries.

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Lesley Macleod Miller, the leader of Foreign Investors for Britain, expressed optimism to Sky News regarding the Treasury's receptiveness, noting, "It's encouraging to see that they seem to be paying attention."

According to our study, instead of generating revenue, the treasury stands to lose as much as £1 billion annually for many years. This loss will exacerbate the existing £22 billion deficit the government is currently facing.

"It's essential for them to recognize that these individuals could be located anywhere—whether that's Switzerland, Italy, or Greece. Moreover, these nations are extending an invitation, suggesting 'if the UK doesn't welcome you, come to us and bring your investments.'"

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Arun Advani, who heads the Centre for the Analysis of Taxation and serves as an associate professor of economics at the University of Warwick, stated that the majority of non-domiciled residents, who are primarily based in London due to its financial hub, are unlikely to leave the city.

He also suggested that the abrupt increase to paying the full 40% inheritance tax after 10 years could be moderated to encourage long-term residency. "One day short of ten years and you're hit with a 40% tax, which might intimidate some individuals," he noted.

Stay updated with political news: Surge in pension credit applications follows reduction in winter fuel allowances. Scottish Conservatives name new leader.

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The new administration has firmly adopted the policy of imposing taxes on non-domiciled residents.

Amidst frustration due to the elimination of the winter fuel allowance for nearly all retirees except the very poorest, the budget presents a crucial opportunity to demonstrate that the burden is being distributed equitably.

Government officials must proceed with caution.

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