Prominent city figures have called on the government to reconsider its proposed changes to the non-dom tax regime, following revelations that Treasury officials are worried the reforms may not generate any revenue.
Labour has pledged to abolish the non-domicile (non-dom) regime a tax status enabling wealthy foreign nationals to pay tax only on UK-earned income and asset gains with plans to redirect the raised funds into public services.
However, amid numerous warnings that the crackdown is causing an exodus of those claiming the status, City AM is reporting on government fears that the potential tax revenue from the reforms could be offset by the financial loss resulting from departures.
The Guardian reports that Treasury officials are concerned that the Office for Budget Responsibility might lower its estimate for the revenue the change would bring in from £3.2bn annually to zero, creating a gap in the government’s already strained finances.
On Friday, the FT reported that the treasury is now contemplating plans to ‘water down’ the proposals.
These findings follow a recent Oxford Economics report cautioning that the reforms could cost the government up to £1bn. This has led to a wave of appeals from City bigwigs for Labour to rethink its plans for the policy ahead of the Budget on 31 October.
Leslie MacLeod-Miller, CEO of industry body Foreign Investors for Britain, which commissioned the Oxford Economics report, commented on the Guardian report: “While the centuries old non-dom regime may be in need of urgent reform, the government’s current proposals stand counterproductive to the wider growth agenda.”
“Rather than helping to attract new forms of inward investment and cementing Britain’s place as a global hub for enterprise, current proposals will result in a net loss to the Exchequer, further inhibiting the Government’s spending ability and stifling much needed investment in public services.”
The Conservatives had previously announced their own measures to tackle the non-dom regime, which has its roots as far back as the Napoleonic war period, during their tenure after Labour called for the regime’s abolition.
However, Labour’s proposed alterations to the regime are more extensive than those suggested by their predecessors, with its inheritance tax reforms drawing the most opposition from critics. Under these plans, assets held in an overseas trust would no longer be exempt from inheritance tax.
Iain Tait, head of private investment office at wealth manager London & Capital, told City AM: “We’re actually seeing people vote with their feet. Out of the 30 or so families that I work closely with in the private investment team, we have four that are leaving the UK.
“The straw to break the camel’s back has been the planned changes to inheritance tax. Those families that have planned, un-aggressively, in good faith, and with the tools that were available to them at the time, and for them to retrospectively have the rug pulled under their feet is the main reason for their choice to leave.”
“What we need is clarity, stability and a predictable environment for people to plan around.”
Tim Searle from HNWTAX said: “For many years, the favourable tax environment in the UK attracted wealthy individuals [and] vast sums of inward investment.
“Too many times, politicians base their policies on what will get them votes rather than empirical evidence for the betterment of the country… They are leaving for more fiscally palatable locations like Switzerland, Dubai, Monaco etc and modern wealth is far more portable than it has ever been; it’s so easy to move now.
“Last year, a non-dom paid the highest income tax bill of £655m but when it is proposed to tax the same individual on their global income too, clearly enough is enough.”
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