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In this article we take a look at Labour’s Non-Dom plan. Will they win the next general election? And if so will that herald the end of UK tax relief for Non-Doms? In the face of this very real and present threat – what action should current Non-Dom’s take?
OVER THE PAST FEW YEARS, the arcane phrase “Non-Domiciliaries” has crept to the front pages of British daily newspapers. “Non-Doms” are those who take advantage of the UK’s centuries old Remittance Tax regime. Most recently the phrase “Non-Dom” created a political storm around Prime Minister Rishi Sunak and his heiress wife Akshata Murty.
It’s all about money, of course: substantial sums of it. And all of it basically straight from the pockets of wealthy expatriates who choose to live in the UK. What better target could exist for the Labour Party and others on the political left in British society to drain these sums permanently for the “public purse”? That is why the Labour Party has vowed to close the Remittance Tax regime, should they come to power.
As a result, as I have discussed in prior blogs, UK Non-Doms need to prepare for the next UK election. This must be held by the end of 2024. Many Non-Doms thought that they had over a year and a half to get a Fire Escape Plan to deal with the possibility that Labour leader Sir Keir Starmer will have an opportunity to carry out his promise. Or in the alternative, that the Conservative PM Sunak will take a page out of the Cameron/Osbourne playbook and throw the Non-Doms under the bus to take the wind out of Labour’s sails.
Can Labour win – and disband the Non-Dom system?
The question on most people’s lips at present is of course: Can Sir Keir win?
Labour has been far ahead in the polls since the departure of Boris Johnson and the even more the disastrous, though short, regime of Liz Truss. Rishi Sunak, together with Chancellor Jeremy Hunt, inherited a Tory Party which was in free fall. Even the Conservatives long reputation for sound economic management had disappeared and banks worldwide gathered to attack the pound sterling and drive up interest rates.
Yet the situation today is quite different. While Sunak’s team are 11 percent behind in the polls, they are no longer 25 percent. Sunak’s policies have strengthened the pound. Whatsmore he has underwritten new subsidies to the poor for their electricity and gas. Can Starmer hold and increase his lead?
In response, Starmer has made a risky political move. He’s doubled down on its controversial campaign against Rishi Sunak with an advert lashing out at his wife’s prior use of Remittance Tax Regime.
In its latest poster targeting the prime minister, Labour accused Mr Sunak of “raising taxes for working people” while his family “benefited from the Non-Dom tax loophole.” Lost in this attack is the fact that Ms Murty has already given up being a Non-Dom.
Labour’s Non-Dom plan: will the non-doms stick around without the remittance basis?
What is key to Labour’s targeting Non-Doms is the assumption that they will choose to remain tax residents in the UK. However, as a quick look at The Times Rich List bears out, most Non-Doms are wealthy, international and savvy. They watch the political winds closely. With this threat of the “Tax the Rich” wildfire threatening their fiscal house, most are prudently acquiring the fire insurance of a second residence and/or citizenship. They are busy developing a Fire Escape Plan to leave the UK and move to another tax favourable jurisdiction.
They are following the clever strategy of other famous previous Non-Doms such as Roman Abramovich. He left the UK tax regime long before Putin invaded the Ukraine. Like Mr. Abramovich, those who do not want to go back to their country of origin such as Russia, India, or Saudi Arabia are equipping themselves to go to other tax favourable developed future tax homes. These include Ireland, Portugal, Monaco, Italy, Switzerland, Israel, Canada, New Zealand or even Singapore.
Those who doubt this trend need only look at the dwindling number of prior… and new… Non-Doms. The total of Non-Doms in the UK at the last count, in 2021, was around 68,000. However the number of new Non-Doms dropped from 15,400 in 2018-19 to 14,200 in 2019-20. It dropped a further 8,500 in 2020-21. In the coming tax year, that figure for new claimants will almost certainly fall further. Indeed, possibly dramatically so. The very real threat of the loss of the Remittance basis is making the UK an undesirable destination.
A 2022 study from the London School of Economics last year noted that Non-Doms pay approximately £7bn a year to HMRC. Labour assumes that the abolishment of the Remittance basis will raise an additional £3.2bn. However, if some go, that pot will not increase. In fact, the £7bn HMRC currently collects will probably shrink. Images of the dog who loses the bone in his mouth when he tries to grab the bone he sees in his reflection in the water comes to mind.
Whether voters or in turn Labour will wake up to this reality is really beside the point to Non-Doms. They know that they only have 15 years to enjoy the Remittance basis under current rules. Labour’s threats just mean that even those with a long period left are acquiring the optionality now… in case they need it sooner. The attack ads are simply a reminder that the populist Tax the Rich wildfire is real and coming fast.
