The Chancellor is reportedly considering scrapping non-Dom tax status in the upcoming budget.
Jeremy Hunt has previously defended the regulations, arguing that they encourage well-to-do people to live and work in the UK. But as the cost of living crisis continues to bite, the Treasury is said to be considering abolishing non-dom status to make more money; so tax cuts could become affordable for millions of people.
But Hunt hopes public finance forecasts will mean the revenue-raising measure will not be necessary. He would be wary of doing anything that could weaken the city’s competitiveness and has previously suggested he would prefer wealthy foreigners to stay in the UK rather than go abroad to jurisdictions where they could continue to benefit from the non-dom tax regime.
What is not being a Dom?
A non-domiciled individual – known as a non-dom – is a term used for UK residents whose permanent home or residence is outside the UK. They only pay UK tax on money they earn in the UK; This means they do not have to pay tax in the UK on money they earn anywhere else in the world, provided the money is not paid into a UK bank account.
Due to the nature of the organization, the non-dom is usually someone who earns a large income. They can legally choose a lower-tax country for their residence, thus potentially saving large amounts of money that would otherwise go to the government.
How does someone become a non-dom?
The term has nothing to do with one’s chosen nationality, citizenship or residence status. Someone can become a non-dom if they were born in a country other than the UK or if their father came from a different country. This status can also be applied to people over the age of 16 who choose to leave the UK and live in another country indefinitely.
A non-Dom must still pay an annual fee for the privilege of having this status. If they have been in the UK for at least seven of the previous nine tax years, this will cost them £30,000 per year. This figure doubles to £60,000 if they have been in the UK for at least 12 of the last 14 years. However, these figures may be much lower than the tax normally payable for non-doms.
A non-Dom must provide evidence to the UK tax authorities about their background, lifestyle and future intentions. Outside the UK, those earning less than £2,000 a year from non-UK earnings do not need to do anything.
Why is the government considering removing it?
Millions of Britons have been forced to save money over the last few years due to rising inflation. This situation increased the prices of basic necessities such as energy, oil and food.
With the cost of living crisis still hitting people’s pockets, the government is looking for ways to ease the burden. One way would be to provide tax cuts, which would be particularly important for the government in a general election year.
The government will close the non-Dom status gap and force the wealthy to pay more taxes. With more money in the Treasury, the government could technically afford the tax cuts.
Research by the University of Warwick and the London School of Economics (LSE) suggests that abolishing non-dom status could bring an extra £3.6 billion to the government. HMRC’s statistics show there are 68,000 non-doms in the UK for the tax year ending 2022.
The move would also be politically inconvenient for the Labor Party, which has long called for an end to non-dom status. If the Conservatives essentially steal the idea, it would mean Labor would have to consider a major new funding initiative to boost Treasury coffers just months before the election. The government will no doubt be keenly aware of this, and that may be one reason why they are considering the idea themselves.
But this could also be politically awkward for Conservatives, who have consistently supported non-dom status. Opponents in the party argue that removing the status would make the UK less attractive to businesses and high-net-worth individuals. The argument is that this lack of incentive will cause wealthy people to leave for another country, meaning they will pay no tax in the UK, making less money for the government.
Hunt had previously said the following about non-doms: “These are foreigners who could easily live in Ireland, France, Portugal, Spain. They all have these plans. “All things being equal, I would prefer them to stay here and spend their money here.”
However, LSE research suggested that only 0.3% of affected non-doms would decide to leave the country as a result of losing their status.
One of the non-Doms is Akshata Murty, wife of prime minister Rishi Sunak. He is a non-dom because his father is from India, where he was born and raised.
Last year it was revealed that Murty had non-dom status and saved millions. But he has since said he would pay tax to Britain on all his worldwide income.
Labor jumped on the news at the time, launching an attack ad featuring a photo of Sunak: “Do you think it’s right to raise taxes for working people while your family are benefiting from a tax loophole? Rishi Sunak does this.
Lord Ashcroft, the former deputy leader of the Conservative Party, is another non-governmental organization whose status has been widely criticized. Ashcroft, who holds British and Belize citizenship, was granted nobility on the condition that he obtain permanent residence in the United Kingdom for tax purposes. The billionaire later left the House of Lords and in 2017 the Paradise Papers leak of offshore investment documents showed Ashcroft remained a resident of Belize despite claiming to have renounced his non-dom tax status in 2010.