Labour’s plan to prohibit non-doms may just value UK financial system virtually £7bn, claims tax professionals

Labour’s policy to ax the preferential tax status of non-doms could cost the UK almost £7bn in tax income, experts have claimed.

Analysis of plans from shadow chancellor Rachel Reeves to scrap non-dom status could, claims tax and advisory firm Blick Rothenberg, result in wealthy residents from overseas leaving the UK for more tax-friendly nations.

Nimesh Shah, chief executive of Blick Rothenberg, said: “Labour’s proposal to abolish the non-dom regime does not appear well formed at this stage, and they risk pushing considerable tax revenue out of the UK.

“Labour has estimated that an additional £1bn could be raised by abolishing the non-dom regime in its current form, but they have overlooked the near-£8bn contribution in income tax, national insurance contributions and capital gains tax.

And this doesn’t include the VAT receipts on spending and employment created by non-doms through businesses they may choose to set up in the UK.”

Non-domicile status allows people living and working in Britain to only pay tax on their UK income but not earnings from overseas. They must prove that they regard a foreign country as their real home.

Other European countries, including Italy, Spain and Portugal, have set up their own equivalent favorable tax systems to attract overseas wealth, and to compete with the UK’s non-dom regime.

Announcing Labour’s policy, Ms Reeves said: “With Labour, people who make the UK their home will contribute to this country by paying tax on their global income.”

If elected at the next general election, Labor would abolish non-dom status, and introduce “a modern scheme for people who are genuinely living in the UK for short periods to allow us to continue to attract top international talent”.

Labor claims the plan would bring the UK in line with countries such as France, Germany and Canada.

A Labor government would also “fast track the publication” of the register of overseas beneficial ownership of property in the UK, which the party claims is crucial for preventing companies’ true owners from carrying out their tax affairs in secrecy.

Mr Shah added: “The non-dom regime is not the problem with the UK’s tax system and not the silver bullet to solve the country’s finances – it’s the tax system as a whole which requires overhaul and simplifying and modernizing the non-dom regime should be part of that, rather than abolishing it altogether.”

It is not the first time Labor plans to tackle the tax status of non-doms has been criticized. In 2015 former Labor shadow chancellor Ed Balls appeared to be in conflict when then leader Ed Miliband attempted tackle the issue.

Mr Balls said: “I think if you abolished the whole [non-dom] status then probably it ends up costing Britain money because there will be some people who will then leave the country.”

The tax treatment of non-doms recently put billionaire Akshata Murthy, the wife of Chancellor Rishi Sunak in the spotlight, after it emerged that she did not pay UK tax on her global income.

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