There is concern that scrapping non-dom status could lead to wealthy individuals leaving the UK, undermining the expected revenue gains.
The Treasury is reassessing parts of Labour’s manifesto plan regarding the abolition of the non-domicile (non-dom) tax status, amid concerns over how much revenue it would actually raise.
A non-dom is a UK resident whose permanent home (domicile) for tax purposes is outside the UK. While no formal policy has been submitted to the Office for Budget Responsibility (OBR), Treasury officials are concerned that scrapping concessions introduced by the previous Government may not generate the £1 billion anticipated.
This £1bn, earmarked for hospital and dental appointments and school breakfast clubs, could be lost if wealthy individuals change their behaviour. The OBR’s March forecast suggested that behavioural changes would likely reduce the projected revenue.
Treasury officials acknowledge the high degree of uncertainty, as small shifts in assumptions about emigration could significantly reduce any potential financial benefits. Therefore, the Government is considering phasing in changes or watering down aspects of the plan, such as applying inheritance tax to trusts or giving discounts on foreign income.
While non-dom status is still set to be decided, the Treasury insists any further changes must demonstrate that they will raise funds. For now, wealthy individuals may still have the opportunity to legally benefit by claiming domicile in lower-tax countries.
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