Jeremy Hunt told to ‘come clean’ on economic cost of non-dom tax status

Ministers have been told to “come clean” on the economic argument behind not scrapping non-doms in the UK after the chancellor suggested he did not know how much money axing the controversial tax status would raise.

[See below Owl’s summary of the anachronistic origins in colonialism and slavery that gave rise to “non-dom” status. It was specifically introduced to shelter foreign property owners from swinging taxes introduced to pay the national debt in 1799. The status remains unique to the UK.]

Kate Devlin

Jeremy Hunt insists the economy would not be helped by scrapping the status, saying on Friday that he would rather the super rich “stayed… and spent their money here”.

And he said he was told by Treasury officials that they were “very unsure” about how much money the move would actually make.

Labour has now called on ministers to publish figures on how many non-doms there are and the amount the Treasury loses because of the loophole.

The highly-respected Institute for Fiscal Studies (IFS) think tank told The Independent the “best estimate” it had was that abolishing the measure would be worth around £3 billion a year.

The figure is roughly the same amount as Mr Hunt announced will be added to next year’s NHS budget.

The Independent revealed earlier this year that Rishi Sunak’s wife, Akshata Murty, held non-domicile status while her husband was chancellor.

Mr Sunak called the reports about his wife “unpleasant smears” at the time, though she ultimately gave up the advantage.

The issue was seen as so toxic that insiders initially believed it scuppered Mr Sunak’s hopes of becoming prime minister.

The lawful status can save an individual from paying UK tax on income from dividends from foreign investments, rental payments on property overseas or bank interest.

Making the call for the government to produce figures on non-doms, shadow chief secretary to the Treasury Pat McFadden said: “As the Tories raise taxes on working people, it simply isn’t right that those at the top can benefit from outdated non-dom tax perks.

“If you make Britain your home you should pay your taxes here.”

He said Labour would ensure “people who make the UK their home will contribute to this country by paying tax on their global income”.

Labour also cited researched from the London School of Economics which alligned with the IFS and put the figure the treasury could raise as close to £3.2 billion a year.

Earlier this year, the IFS warned there was “very little evidence on the effectiveness of the non-dom regime at attracting and retaining valuable individuals”.

But Mr Hunt argued that scrapping the tax loophole as Labour has suggested would “damage the long-term attractiveness of the UK”.

He faced questions over his decision to keep the status while planning tax rises and public service cuts, which experts warned would hurt those on middle incomes especially.

The chancellor said Treasury officials did not give him solid numbers on how much abolishing or paring back non-dom status would raise.

“They said to me that they were very unsure about the figures that were being bandied around, as far as the savings were concerned,” he said.

“Like me, they wanted to be very sure they weren’t doing things that damaged the UK’s attractiveness. 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.”

Pushed on whether Treasury had given him a figure on how much abolishing the status would bring in, he said: “No, because we don’t agree with the figures that Labour have given.

“The Treasury did not tell me it was going to help the economy to do this, that’s why I chose not to do it.

“I’m not going to do anything that’s going to damage the long-term attractiveness of the UK, even though it gives easy shots to opposition parties, I think it would be the wrong thing to do in terms of creating jobs in the UK.”

Labour has pledged to abolish non-dom tax status and replace it with a system similar to that in Germany or Canada where temporary residents are allowed to avoid paying domestic tax on overseas earnings.

Shadow chancellor Rachel Reeves accused Mr Hunt of endorsing “tax free income for millionaires while millions face frozen tax allowances and council tax hikes”.

In an apparent reference to Mr Sunak’s household, she added: “How can he possibly claim that this is fair? He refuses to act, and I wonder why. Maybe that was the only policy that he can’t get signed off by No 10 Downing Street. I say if you make Britain your home you should pay your taxes here.”

A Treasury spokesman pointed to Mr Hunt’s comments that axing the status would be the “wrong thing to do in terms of jobs and prosperity for the United Kingdom”.

History  of “Non-Dom” status and its origins in colonialism and slavery

The “non-domicile” tax exemption regime was originally introduced in 1799 to shelter those with foreign property from the swinging taxes introduced by prime minister William Pitt the Younger.

Pitt introduced new taxes In 1786 to try to reduce the debt incurred by the American War of Independence. With the country still in debt, Pitt was also forced, in 1797,  to introduce Great Britain’s first-ever income tax. The Napoleonic wars followed almost immediately and Pitt may have seen these coming.

“Non-Dom” status, then, is an echo of our colonial past. 

It is subtly different from nationality and residence and roughly equates to the concept of “homeland”. “Non-Doms” are supposed to have strong links to that “homeland” and demonstrate intent, not to remain in Britain, but to return there. A further curiosity is that you can also inherit the status from your father.

However, if eligible, you still have to make a conscious decision to claim this status. It’s a choice.

Having lost America, the aim of the perk was to keep the new colonial rich happy. Those who were now left propping up the empire, for example sugar farmers in Jamaica. 

It is, therefore, appropriate to consider this quirk in the light of the current debate on the legacy of slavery.

Slavery was only outlawed completely, though not entirely stopped, in the “Empire” in 1833 and emancipation was not fully achieved in the USA until 1865.