Next Labor government would scrap no-dom status used by the wealthy to lower their tax bills, party says The Independent.
The decision comes later The Independent revealed that Rishi Sunak’s wife, wealthy businesswoman Akshata Murty, had used non-domicile status to minimize her UK tax bill and exposed alleged links between Mr Sunak and offshore trusts.
The Chancellor, as well as most cabinet ministers, declined to say whether they directly or indirectly benefited from non-dom status or the use of tax havens.
Labour’s Shadow Chancellor Rachel Reeves said: ‘While the Tories are raising taxes on working people, it is simply not fair that those at the top can benefit from outdated non-dom tax benefits.
“With Labour, people who move to the UK will contribute to this country by paying tax on their overall income.”
Labor’s decision to scrap non-dom status adds to pressure on the government amid the growing cost of living crisis and Partygate scandal that threatened to overshadow the prime minister’s trip to India last week, ahead of UK local elections in May.
Ms Reeves said: ‘The Prime Minister and Chancellor have spent the last few weeks preoccupied with saving their own skins and done nothing to combat the spiraling cost of living.
“Worse still, they made it harder for workers to make ends meet by increasing National Insurance.”
The opposition party has also announced that it will now review the use of trusts hidden overseas and in tax havens to avoid paying tax in the UK, as part of a wider review of the UK tax system started in September last year.
Labor decided to drop non-dom status because it failed a value-for-money test, as the party says it likely costs more in lost revenue than it generates. It would replace non-dom tax status with a mechanism similar to those in Germany or Canada that also allows temporary residents to avoid domestic tax on overseas income.
“It would be a clear, simple and modern system, ending the 200-year-old rules we currently follow that the average domicile is passed down through people’s fathers, without needing the four complicated flow charts that HMRC uses to determine the someone’s home,” a Labor Party spokesman said.
The government’s current policy is a “bizarre disincentive to investment in the UK”, Dan Neidle, tax lawyer at Clifford Chance, said on Twitter. He estimates that removing the special status would generate hundreds of millions of pounds in new tax revenue.
Four in 10 people who earned £5m or more in 2018 have claimed non-dom status at some point, academics from the London School of Economics and the University of Warwick have found in a recent study. This has been a lively political issue in recent years, with a conditional 15-year limit imposed on tax relief introduced in 2017.
However, if a non-dom sets up a trust overseas before their status expires, they can still receive the tax relief through that trust after the 15-year limit is reached. This is one of the reasons why the Labor Party has also announced that it will review the use of tax havens and offshore trusts.
Mr Sunak, as Chancellor, is responsible for setting UK tax policy. He referred his financial statements for scrutiny by independent adviser on ministerial interests, Lord Geidt. After a spokesperson initially defended her use of non-dom tax status relief, Ms Murty announced she would no longer use non-dom status on her tax return. However, she has not waived the possibility of using it in areas such as inheritance rights.
In a statement posted to Twitter earlier this month, Mr Sunak said: ‘I have always followed the rules and hope such a review will bring more clarity.’ A source close to the Chancellor said they do not acknowledge the allegations and documents seen by The Independent which showed that Mr Sunak was listed as a beneficiary of offshore tax havens in 2020.
Some senior Treasury officials claimed to have offered advice on decisions relevant to non-dom status and tax havens, but were not told about the chancellor’s ties to those issues. However, sources close to Mr Sunak said top Treasury figures were aware of the matter, in order to manage possible conflicts of interest.
Former Chancellor and current Health Secretary Sajid Javid released a statement confirming that he had also used non-dom status, after The Independent revealed Ms Murty’s use of the tax relief.
In response to the announcement of Labour’s new policy, a UK Treasury spokesperson said: ‘We want to attract talent to work and live in the UK, but it is only fair that those who choose to live here for long pay their fair share of taxes. , which is why we reformed the rules in 2017 to end permanent non-dom status.
“Non-doms play an important role in funding our public services through their tax contributions – worth over £6billion a year.”
Labor’s review of the use of trusts and tax havens will also look at how to expand beneficial ownership registers and tax reporting regimes “to provide transparency around offshore trusts”. It will also try to force the government to confirm the full extent of the offshore trust and how much it costs the state, by limiting the scope of UK taxes, a spokesman said.