What are non-doms and why is Labour cracking down?

Overseas investors in London properties have already been spotted abandoning the capital’s most expensive homes (PA Wire)
Overseas investors in London properties have already been spotted abandoning the capital’s most expensive homes (PA Wire)

The UK Government announced in July that from April 2025, the tax system for non-domiciled individuals will be eliminated and replaced with a new residence-based system.

The measure will "address unfairness in the tax system and ensure that everyone who is a long-term resident in the UK pays their taxes here" according to a policy document the Treasury released.

But Labour also has other plans.

According to Government estimates, in the tax year ending in 2023, 4,000 people claimed non-domiciled taxpayer status in the UK on their self-assessment tax returns. That was an increase from 68,900 in the tax year ending in 2022.

What exactly are non-doms and why exactly is Labour clamping down on them?

What are non-doms?

In the UK, "non-doms" refers to people considered non-domiciled for tax purposes. This means they are not liable to pay UK tax on their foreign income and gains, provided that income is not brought into the UK.

The non-dom status has been a significant point of contention in UK tax policy due to concerns about fairness and tax avoidance.

If people declare a lower-tax nation as their residence, this offers wealthy individuals a considerable — and completely legal — savings potential.

Under the residence-based regime, for the first four tax years of their residency, non-doms can bring their foreign income and gains into the UK free of tax (also known as the foreign income and gains regime, or FIG regime).

Once someone reaches four tax years in the UK, they will be liable to pay UK tax on their worldwide assets.

The Guardian reported that about 74,000 people claimed non-dom status in 2022-23.

Why is Labour cracking down on non-doms?

Labour intended to invest in failing public services with the funds earned from wealthy people registered as foreign taxpayers.

The Office for Budget Responsibility (OBR) initially estimated that ending the tax break for high-income immigrants could generate approximately £3.2 billion annually.

However, this estimate was "highly uncertain" because affluent people might choose to leave the country or find other ways to evade the restrictions.

Labour said they wanted to generate an estimated £2.6 billion over a Parliament by closing loopholes. This followed the Conservatives' surprise announcement last year that they were phasing out the regime.

Labour estimated that implementing its plans would generate an initial £1 billion in the first year. This would pay for extra medical and dental visits — and universal breakfast clubs in schools.

However, Treasury officials worry that enough will not be raised due to the impact of the super-rich non-domiciles leaving the UK.

Overseas investors in London properties have already been spotted abandoning the capital’s most expensive homes.

Is Labour going to change inheritance tax?

The only official statement in Labour's manifesto about inheritance tax is that it will “end the use of offshore trusts to avoid inheritance tax”.

Labour has not proposed changes to the existing inheritance tax rates, reliefs, or exemptions. Notably, the nil rate band for inheritance tax has been frozen at £325,000 since 2009. There is also a residence nil rate band of £175,000 for those passing on their homes to children or grandchildren​(

Overall, the party appears to be focusing on tightening regulations around tax avoidance rather than making sweeping changes to inheritance tax policies.

Clarification on the issue is set to come in Chancellor Rachel Reeves’s autumn budget on October 30, 2024.