Labor has pledged to close the ‘no-dom’ tax loophole used by Chancellor Rishi Sunak’s wife to save up to £20million in UK tax.
Rachel Reeves, the shadow chancellor, said it ‘simply isn’t fair that those at the top can get outdated non-dom tax benefits’ as ordinary people struggle with tax hikes taxes and the cost of living crisis.
Reeves said on Monday that Labor was sending “a clear message” to the global super-rich: “If you move to Britain, you should be paying tax here – on all your earnings.”
Labour’s pledge follows the revelation that Sunak’s billionaire heiress wife Akshata Murty had been registered as a non-domiciled person for nine years and paid an annual levy to protect her foreign earnings from HMRC.
This status meant she could legally avoid UK tax on annual dividends worth millions, which she collected from her family’s IT empire.
After days of mounting public and political outrage, Murty announced this month that she would start paying taxes on her worldwide earnings. However, she will not do so on backdated income. She has also refused to give up her non-dom status, which in future could give her family a legal way to avoid an inheritance tax bill of over £275million.
It also emerged that Sajid Javid, the Health Secretary, had held non-dom status for six years while a banker, also allowing him to avoid overseas income tax without breaching the law.
“With Labour, people who move to the UK will contribute to this country by paying tax on their overall income,” Reeves said.
“The Prime Minister and the Chancellor have spent the past few weeks preoccupied with saving their own skins and done nothing to combat the soaring cost of living. Worse still, they have made it harder for working people to join ends meet by increasing national insurance.
Reeves promised that a Labor government would “tax fairly, spend wisely and grow the economy”.
Proponents of non-dom status have warned its removal could deter business owners from investing in the UK and creating jobs.
Reeves said Labor would replace non-dom status – which was introduced under King George III in 1799 when Britain was fighting France – with a modern scheme for people who “genuinely live in the UK for short periods to enable us to continue to attract top international talent”.
Labor has said it will consult widely on the operation of its new ‘tax scheme for temporary residents’, but any tax benefits are likely to expire after five years, compared to up to 15 under the system. current.
The party said its plan would “finally end the broken 200-year-old system that allows people to dodge millions in taxes and bring our rules in line with similar systems in other major economies like France, the United States.” Germany and Canada. ”.
Removing the non-dom scheme could lead to a £1billion increase in the public purse, Labor has claimed citing research from the EU Tax Watch.
The number of people who have ever claimed non-dom status in the UK has risen from 162,000 in 2001 to 238,000 in 2018, according to research from the London School of Economics and the University of Warwick.
This is not the first time Labor has promised to tackle the controversial tax loophole, including when in government.
When Gordon Brown was chancellor, he used his 2002 budget to announce a review of non-dom rules following public outrage at the revelation that Hans Rausing, then the UK’s richest person, was claiming status of non-dom.
Brown said the country “must move quickly to close tax loopholes and be vigilant against tax evasion.”
However, it took a year to produce a ‘discussion paper’ which ruminated on possible changes, but no action was taken.
Critics suggest super-rich non-doms and their well-paid advisers lobbied for the tax scheme to remain, saying if it were scrapped the global super-rich would leave the UK and take their money with them .
During the period when potential changes were being discussed, steel billionaire Lakshmi Mittal – a non-dom – emerged as Labour’s biggest donor. Mittal, who owns a £90million mansion in Kensington Palace Gardens next to fellow non-dom Roman Abramovich, donated £125,000 in 2001 (before the review) but increased donated £2 million in 2005 and gave another £2 million in 2007.
In 2015, then-Labour leader Ed Miliband also promised to scrap the “indefensible” non-dom tax regime.
A spokesperson for Gordon Brown declined to comment.