Reports suggest that Jeremy Hunt is considering raising taxes on non-doms in the Budget. The Labour Party has said that it would scrap the non-dom rules if it wins the general election. Neither party has specified exactly how they would reform this extremely complex area.
A new IFS briefing, funded by the abrdn Financial Fairness Trust, the Nuffield Foundation and the Economic and Social Research Council, briefly summarises what is known (and not known) about non-doms, the options for reforming how they are taxed and the potential revenue implications.
Stuart Adam, a Senior Economist at the IFS and an author of the report, said:
“There is a strong case for reforming the taxation of non-doms: the current system is complex, inequitable and creates some perverse incentives. The subjective concept of domicile is an unsatisfactory basis for taxation; it would be better to base taxation on objective, observable criteria such as years of residence. But ‘scrapping non-dom rules’ could mean many things in practice. Simply abolishing any distinction between the taxation of permanent residents and people who have recently arrived here would arguably be unfair to those coming and would make the UK a less attractive location.
Government needs to tread carefully, not least because the 37,000 non-doms who currently claim tax exemptions on their offshore income and capital gains nevertheless collectively pay around £6 billion a year in UK income tax, National Insurance contributions and capital gains tax – an average of around £170,000 each. It might be possible to raise a couple of billion pounds more from non-doms, but there is a great deal of uncertainty and much depends on the detail. The more ambitious tax-raising reforms are, the greater the potential revenue yield – but also the greater the risk that the UK would attract fewer non-doms and lose the tax revenue they bring in.
Whatever the reform, it should be based on a careful weighing of the long-run pros and cons. Changing the regime in order to fund pre-election tax cuts would not be a good reason for making such a change, whatever the pros and cons of any reform adopted.”
