Labour seeks to toughen planned tax crackdown on ‘non-doms’

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Labour will on Tuesday propose to toughen a planned crackdown on tax perks enjoyed by “non-doms” living in the UK, alongside a wider effort to tighten compliance, as the party seeks to plug a hole in funding for its health and education pledges.

Rachel Reeves, shadow chancellor, will unveil a range of measures focused on closing loopholes and toughening enforcement of the UK tax code. 

Her plans would remove an exemption left by the Conservative government when it unveiled plans in March to abolish non-dom status, which allows foreigners living in Britain to assert their domicile is overseas and thereby avoid paying UK tax on their foreign income and capital gains.

Labour calculates its tougher crackdown on non-doms would bring in more than £1bn in tax in the first year of implementation, should the party win the next general election.

This would be achieved partly by abolishing the 50 per cent tax discount for non-doms who bring in foreign income in 2025-26 — a measure the government outlined in the March Budget. Labour estimates that scrapping the discount would raise £600mn in revenue.

A separate crackdown by Labour on tax avoidance and evasion would increase gradually, aiming to bring in £700mn in the first year, rising to £5.1bn annually by the end of the first parliament.

However Labour’s effort would represent only the latest of a series of attempts to tighten enforcement — including in the March Budget.

Jeremy Hunt, the chancellor, wrongfooted Labour last month with a surprise plan to axe the colonial-era, non-dom tax regime, raising up to £3.67bn by 2027-28 as part of efforts to fund a second round of cuts to national insurance. 

The move in the Budget represented a raid on a core Labour policy that Reeves intended to use to fund spending plans. Hunt coupled it with an extension to an existing windfall tax on oil and gas production — also a Labour policy. 

Reeves’ announcement aims to demonstrate how a Labour government would fill the funding gap in her plans left by Hunt’s decisions. 

Under her plans, Labour would also reverse a Tory decision to permit non-doms who will lose benefits from next April to shield foreign assets held in an offshore trust from inheritance tax. Labour said the Conservatives’ plans would lead to £430mn in foregone inheritance tax every year. 

Reeves will also vow to “take on the tax dodgers” by investing more in HM Revenue & Customs’ ability to police its rules.

Up to £555mn of extra funding would be channelled to the tax authority every year to help increase the number of compliance officers by up to 5,000. 

Labour would invest more in digital capacities at HMRC, including by wider deployment of artificial intelligence.

Labour argues the “tax gap” between money owed and tax paid remains “stubbornly high” and that the Conservatives are not doing enough to bring it down. 

Reeves’ plans would “give HMRC the resource it needs to go after those who are avoiding or evading tax, and to modernise the tax office so we have a system that is fit for purpose”, she will say. 

But tax experts said any effort to bolster compliance takes time given the need to recruit and train officials.

The Institute of Chartered Accountants in England and Wales, a professional body, said a balance needed to be struck between tackling non-compliance and other areas of the tax system.

Caroline Miskin, a senior technical manager at the ICAEW, said investment needed to be “across the board”.

The Tories hit back at Labour’s plans. Laura Trott, chief secretary to the Treasury, said: “After a month of searching for a plan to pay for Labour’s unfunded spending, the shadow chancellor still cannot say how she will fill the enormous black hole in their promises. And that means one thing — more taxes.” 

Labour has been attempting to neutralise Conservative claims that it will further increase taxes after the upcoming election, arguing instead that it can fulfil its spending pledges via narrowly targeted revenue-raising measures while holding the line on public spending. 

Labour has previously detailed three tax rises that would raise a combined £5.6bn: a raid on the earnings of private equity bosses, taxes on private school education, and ending non-dom status.

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