Chancellor Rachel Reeves is ready to ‘water down’ her tax raid on non-doms in the upcoming Budget as officials fear closing the tax loopholes may not generate any extra money, according to reports.
A report by The Guardian on Wednesday (September 24) revealed the Treasury feared estimates due to be released by the OBR may suggest Labour’s plans may fail to raise any revenue.
Earlier this year, Labour pledged to raise £5.2bn by closing what it called ‘non-dom tax loopholes’ and investing in reducing tax avoidance.
The government had said it would use the money raised to fund public services.
However, a report in the Financial Times last week (September 25) said Reeves would overhaul the plan if the numbers “did not add up” but that no decision had been made.
An official told the FT: “We are looking at the details of our proposals. We will be pragmatic not ideological. We will not press on regardless, but we are not going to abandon this completely.”
Step, the body for inheritance advisers, reported in August that proposals for a four-year FIG regime would be implemented from April 2025.
This meant people who have not been UK-resident for the 10 years before the 2025/26 tax year would be eligible and would be able to remit FIG tax-free to the UK for a maximum of four tax years.
It also reported the protected trust regime would be abolished from April 6 2025 for those who do not qualify for the FIG regime and settlers would be subject to income tax and CGT on the income and gains of the trust.
Experts had previously said Labour's plan to raise revenue by reforming the non-dom regime was "wishful thinking”.
With some warning it would drive wealthy people to move to more tax favourable jurisdictions.
Gary Ashford, tax partner at Harbottle & Lewis, said: “Any ‘watering down’ of the proposals would be much welcomed.
“It is now quite widely accepted that significantly more non-doms will potentially leave the UK than the Labour Party – or indeed the Conservatives – anticipated when they both proposed scrapping the non-dom rules.
“Given the very clear negative media around the issue it is not a surprise that the new government is looking at this, and hopefully reconsidering.
“My view has always been that to take account of the general public debate the non-dom rules do need some further reforms – and remember we have already seen a lot of reform; 2008, 2017.
“However, further reform could be made, possibly increasing again the remittance basis charge and the point at which it comes into force, or of course introducing something similar to the Italian non-dom rules.”
alina.khan@ft.com
