A Labour government would replace the “non-dom” taxpayer status enjoyed by many wealthy individuals in the UK — including the chancellor’s wife — the party announced on Monday.
Rachel Reeves, shadow chancellor, said Labour would abolish non-domiciled status and introduce a shorter-term scheme for those staying in the UK for up to five years. Britain’s non-doms can currently enjoy tax-free status on foreign earnings for up to 15 years.
Rishi Sunak, the chancellor, became engulfed in a row this month over the tax status of his wife Akshata Murty, the daughter of an Indian billionaire, after it emerged that she was non-domiciled in the UK for tax purposes. That saved her millions of pounds in tax on dividend payments from her shares in Infosys, the family company.
She has since announced that she will pay UK tax on her overseas income, but has not given up the non-dom status that could still save her hundreds of millions of pounds in inheritance tax.
A non-dom is a UK resident who declares that their permanent home is in another country. The status, first introduced by King George III in 1799 while Britain was at war with France, means that while they have to pay UK tax on UK income they do not need to pay domestic tax on overseas earnings.
Sajid Javid, the health secretary, has admitted that he enjoyed non-dom status for several years while he was an investment banker before entering politics.
Previous Labour leaders Ed Miliband and Jeremy Corbyn had vowed to scrap non-dom status altogether.
But Reeves said her proposed programme would be more in line with schemes in Canada, Germany and France. Labour would sort out the details in due course, she said.
“This would be a clear, simple and modern system, ending the 200-year-old rules we currently follow that mean domicile is passed down through people’s fathers,” she said.
The initiative is part of a wider review of tax breaks by Labour that was promised by Reeves at the party conference last autumn.
Reeves said it was doubtful that the changes would prompt entrepreneurs to leave the country, pointing out that New York has more billionaires than London even though US residents pay US tax on all worldwide income.
“As the Tories raise taxes on working people it simply isn’t right that those at the top can benefit from outdated non-dom tax perks,” she said.
“With Labour, people who make the UK their home will contribute to this country by paying tax on their global income.”
Labour estimates that 1,900 non-doms in the UK have enjoyed the status for more than five years, while another 44,000 have had it for less than that and therefore would be eligible for the new scheme.
Gordon Brown, when Labour chancellor, announced almost exactly the same initiative in 2002. He ordered HM Revenue & Customs to launch a review of the non-dom system — and consider an alternative five-year cap — but the plan was abandoned.