Leading city figures have urged the government to adapt its planned reforms to the non-dom tax regime, after it was revealed the Treasury officials are concerned that the reforms may not raise any money.
Labour has promised to scrap the non-domicile (non-dom) regime – a tax status that allows wealthy foreign nationals only to pay tax on income and asset gains earned in the UK – and had planed to funnel the money it would raise into public services.
But after a slew of warnings that the crackdown was prompting an exodus of those who claim the status, the government is worried that the tax the reforms would raise might be outweighed by the loss the exchequer could have to stomach from departures.
According to The Guardian, Treasury officials fear that the Office for Budget Responsibility could revise downward its estimate for how much revenue the change would generate from £3.2bn a year to zero, leaving a hole in the government’s already tight finances.
The findings come after a recent Oxford Economics report warned the reforms could cost the government up to £1bn and have led to a chorus of calls from City heavyweights for Labour to reconsider its plans for the policy ahead of the Budget on 31 October.
Leslie MacLeod-Miller, chief executive of industry body Foreign Investors for Britain, which commissioned the Oxford Economics report, said of 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 announced their own crackdown on the anachronistic non-dom regime, which dates back as far as the Napoleonic war period, when they were in power, after Labour first called for the regime to be abolished.
But Labour’s proposed changes to the regime go further than those outlined by their predecessors, with its reforms to inheritance tax attracting the most resistance from critics.
Under the plans, assets held in a trust held overseas would no longer be exempt from inheritance tax.
Iain Tait, head of private investment office at wealth manager London & Capital, told City A.M.: “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 30 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 pan around.”
Meanwhile Tim Searle, an advisor at leading tax specialist 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.”