Yahoo News What is non-dom status and why has Hunt scrapped it?
Chancellor Jeremy Hunt is scrapping the non-dom status to raise funds for tax cuts.
Chancellor Jeremy Hunt has announced that non-dom status will be scrapped in a bid to raise £2.7 billion a year, as part of Wednesday's Spring Budget.
Speaking in the Commons, Hunt said: "The government will abolish current tax system for non-doms, get rid of the outdated concept of domicile. We will replace the non dom regime with a modern simpler and fairer residency."
Currently, people with non-dom status are able to earn money from abroad without having to pay UK tax (provided they have not lived in the UK for more than 15 of the past 20 years).
The chancellor announced on Wednesday that this would change so that those who arrive to the UK from 2025 will be exempt from UK tax for just four years - with a two-year transition period for those who currently have non-dom status.
Hunt has previously defended the non-dom rule, insisting it encourages those who are well-off to live and work in the UK. But with the cost of living crisis continuing to bite, the Treasury has opted to scrap non-dom status to generate more money – so that tax cuts can be affordable for millions of people.
What is non-dom status?
A non-domiciled individual – known as a 'non-dom' – is a term for a UK resident whose permanent home, or domicile, is based outside the UK. They only pay UK tax on money that they earn in the UK, meaning that they do not have to pay tax in the UK on money they make anywhere else in the world – providing the money is not paid into a UK bank account.
Anyone who has been a UK tax resident for 15 out of the past 20 years cannot apply for permanent non-domiciled status.
Due to the nature of the set-up, a non-dom is often a person who earns a large income. They are able to legally choose a lower-tax country for their domicile, potentially saving them vasts sums of money that would otherwise go to the government.
How does someone become a non-dom?
The term has nothing to do with someone’s chosen nationality, citizenship or resident status. Someone is able to become a non-dom if they are born in a different country to the UK or if their father comes from a different country. The status can also be applied to someone over the age of 16 who chooses to leave the UK and live in another country indefinitely.
A non-dom must still pay an annual charge for the privilege of holding the status. If they have been in the UK for at least seven of the previous nine tax years, it will cost them £30,000 a year. This figure doubles to £60,000 if in the UK for at least 12 of the previous 14 years. However, these figures may be far lower than the tax that would ordinarily be paid if not a non-dom.
A non-dom must provide evidence about their background, lifestyle and future intentions to UK tax authorities. Those who earn less than £2,000 a year from earnings outside the UK that isn’t brought to the UK do not have to do anything.
Why has the government scrapped it?
Millions of Britons have been forced to cut costs over the past few years due to rising inflation. This has pushed up prices on essentials such as energy, petrol and food.
With the cost of living crisis still hitting people in the pockets, the government is looking for ways to ease the burden. One of these ways would be to provide tax cuts – which will be especially important for the government in a general election year.
By closing the non-dom status loophole, the government is forcing the well-off to pay more in taxes. With more money in the Treasury, the government would technically be able to afford tax cuts.
Research by Warwick University and the London School of Economics (LSE) suggests that scrapping the non-dom status could bring in an extra £3.6bn for the government. Statistics from HMRC show that there were 68,000 non-doms in the UK for the tax year ending 2022.
The move is also be politically awkward for Labour, who have long called for the non-dom status to be axed. With the Tories essentially stealing the idea, Labour will be forced to think of a major new funding initiative to boost the Treasury coffers just months before an election. The government will no doubt be acutely aware of this and could be one reason why they have used the idea themselves.
However, it is also politically awkward for the Conservatives, who have previously supported the non-dom status. Opponents in the party have argued that scrapping the status will simply make the UK less attractive for businesses and high-earning individuals. The argument is that this lack of incentive will simply make the well-off move to another country – meaning they don’t pay any tax in the UK at all, bringing in less money for the government.
Hunt has previously said of non-doms: “These are foreigners who could live easily in Ireland, France, Portugal, Spain. They all have these schemes. All things being equal, I would rather they stayed here and spent their money here.”
However, LSE research has suggested that only 0.3% of the non-doms affected would decide to leave the country as a result of losing their status.
One notable non-dom is prime minister Rishi Sunak’s wife, Akshata Murty. She is a non-dom due to her father being from India, where she was also born and grew up.
Last year it was revealed that Murty held the non-dom status and reportedly saved millions. However, she has since said she will pay UK taxes on all her worldwide income.
At the time, Labour jumped on the news and released an attack ad that featured a picture of Sunak that said: “Do you think it’s right to raise taxes for working people when your family benefitted from a tax loophole? Rishi Sunak does.”
Former deputy chairman of the Conservative Party, Lord Ashcroft, is another non-dom whose status was widely criticised. Ashcroft, who holds British and Belizean nationality, was given a peerage on the condition that would take up permanent residence in the UK for tax purposes.
The billionaire later quit the House of Lords and in 2017 the Paradise Papers leak of offshore investment documents showed that Ashcroft remained a domicile of Belize despite having claimed to have given up his non-dom tax status in 2010.
