Tories Explore Abolishing Non-Dom Tax Status

More businesses expect taxes to rise rather than fall after the next general election, according to research from accountancy and business advisory firm BDO. 

The Chancellor is currently examining the possibility of abolishing the tax status enjoyed by individuals residing in the UK but maintaining their tax domicile overseas.

Known as non-domiciled or non-doms, these individuals are only liable to pay UK tax on income earned within the UK, with no obligation to pay taxes on income earned elsewhere.

One of the most prominent non-doms in the UK is Akshata Murty, the wife of Rishi Sunak, though she opted to commit to paying UK tax on her overseas income two years ago.

Conservatives, including Chancellor Jeremy Hunt, have traditionally supported the non-dom arrangements, arguing that they contribute to making the UK an attractive destination for affluent individuals to live and work.

Mr. Hunt remains steadfast in ensuring that his policies do not undermine this attractiveness.

However, with the Budget looming, Treasury officials are exploring various avenues to either increase tax revenue or reduce expenditure, with the aim of financing tax cuts for millions of taxpayers.

Abolishing the non-dom regime is estimated to potentially generate £3.6 billion for the government, according to research conducted by Warwick University and the London School of Economics. HM Revenue and Customs’ latest data indicates that there were 68,800 non-doms in the UK for the tax year ending in 2022.

Recent forecasts from the Office for Budget Responsibility (OBR) have narrowed the scope for widespread tax cuts, unless additional revenue sources are identified.

Both the Chancellor and the Prime Minister have been dropping strong hints for months about their intentions to implement tax cuts.

Among the options under consideration to address this fiscal challenge are:

– Reducing spending assumptions across government departments over the next five years.
– Introducing a new tax on vaping and increasing taxes on tobacco.
– Abolishing non-dom tax status.

The Chancellor is awaiting further data from the OBR in the coming days and has not yet committed to any specific measures regarding non-doms.

However, he has not ruled out the possibility either.

From a political perspective, this development is intriguing as it highlights the Chancellor’s dilemma as he contemplates an idea he has previously rejected.

Should he decide to pursue this course of action, it would present a dilemma for the Labour Party, as it would entail adopting one of their proposals and potentially complicate their own fiscal plans if they also endorse any tax cuts announced by the Chancellor, as is anticipated.

Labour’s Shadow Chancellor, Rachel Reeves, has warned that whichever party wins the next election will inherit challenging economic circumstances, comparing the situation to the aftermath of the Second World War.

She criticized the Conservatives for abandoning fiscal prudence, using a metaphor likening their actions to breaking windows and setting fire to a house after George Osborne’s promise to “fix the roof” while the sun was shining.

Labour has pledged to adhere to the principle that national debt should decrease as a share of the national economy within five years.

The government might deplete much of its fiscal headroom in the upcoming Budget, potentially implying that Labour would need to raise taxes if they were to take office.

Conservative plans for tax cuts are based on a provisional allocation for public spending post-election, rather than detailed spending plans.

Ms. Reeves is expected to unveil further details about Labour’s economic approach after the Budget, once the new economic forecasts from the OBR are available.