Labour’s non-dom crackdown will bring in ‘just £8,000 per person’

Keir Starmer will target tax avoiders to pay for his spending commitments on schools and the NHS - Labour Party

Labour’s crackdown on non-doms will bring in just £8,000 per person, analysis shows, raising the possibility it may cost more than it raises as wealth creators are driven away from the UK.

In its manifesto published on Thursday, the party promised to raise £5.2bn by clamping down on tax avoidance and non-dom loopholes, saying this would go towards funding schools, the NHS and investment in HM Revenue and Customs (HMRC).

But The Telegraph understands that tax rises for non-domiciled residents will raise a mere £450m with the vast majority of this revenue (£4.7bn) to come from fighting tax errors and evasion.

Around 55,000 non-doms claim tax relief in the UK, according to HMRC. This suggests a revenue of just £8,000 per person, according to accountancy firm Blick Rothenberg.

An estimated 37,000 opt to pay the “remittance basis” each year – meaning no tax is paid on their foreign income or gains. These individuals paid about £6bn in tax in 2020-21.

If 10pc of non-doms paying the remittance basis gave up their status because of Labour’s reforms, as previous research has suggested, then almost 4,000 could leave. If 10pc were to be wiped from the £6n figure, the loss to the economy at £600m would be greater than the crackdown itself.

The non-dom regime allows people living temporarily in this country to avoid paying UK tax on their foreign gains and income.

Stealing a key Labour policy, the Tories scrapped the non-dom status in the Spring Budget, claiming this would raise £2.7bn.

Labour vowed to go one step further and close a “loophole” allowing non-doms to move their money into an offshore trust before the ban comes into place in April 2025. This policy was then confirmed in the party’s manifesto on Thursday.

Robert Salter, of firm Blick Rothenberg, said the £450m figure was most likely the revenue Labour expected to get from imposing inheritance tax on non-doms.

If so, it looked like an “artificially optimistic figure”, he added. This is because the crackdown could prompt an exodus of non-doms looking to shield their wealth from death duties.

There has been much debate around whether tax rises for non-doms could increase revenue, or reduce it.

According to research by the University of Warwick, when the Government announced in 2017 that the non-dom status could not be held permanently, the proportion abandoning their UK tax resident status increased from around 4pc to 10pc.

If scores of non-doms were driven out of the country, then Britain could potentially lose billions of pounds in revenue.

Around 37,000 opt to pay the “remittance basis” each year according to HMRC figures – meaning no tax is paid on their foreign income or gains. These individuals paid about £6bn in tax in 2020-21.

If 10pc of non-doms paying the remittance basis gave up their status because of Labour’s reforms, then almost 4,000 could leave.

A loss of 4pc would risk a £240m hit to the economy while 10pc would risk £600m.

Mr Salter said: “While many non-doms may not move if they have to pay some tax on their overseas investment income and gains, they may be much more willing to move in an attempt to avoid inheritance tax,” he said.

“It is too early to say it will definitely happen – but it appears reasonable on the basis that the UK inheritance tax rate of 40pc is actually quite high when compared to international norms.”

Christopher Groves, of law firm Withers, said some of his clients had already left because of the looming threat of inheritance tax.

“We have clients who’ve already gone. These people have their own businesses and homes overseas. So it’s not a case of moving their whole life to another country – for them, it’s a slight pivot. They leave and take their companies with them.”

He said the 40pc levy would be a significant deterrent for wealthy people looking to move here.

“Trusts are very common among people who come here and start businesses and make a difference to the economy. A lot of them will already have some wealth held in a structure like that before they even arrive. It’s a way to ensure the stewardship of assets between generations.

“Saying inheritance tax will apply on these assets is a fundamental change. It’s a concern for people looking to move to the UK that if anything happened to them and they died, their family might have to pay a 40pc tax.”

The real number of non-doms living in the UK is difficult to pin down.

Mr Salter said: “The great majority of people who may be non-domiciled from a tax perspective actually don’t have significant overseas income and hence will not be claiming the status on their tax return.”

Labour was contacted for comment.