Treasury considering £150k levy to replace non-dom status
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Downing Street has been considering whether to copy an Italian scheme in which wealthy foreigners pay a €100,000 (£85,500) yearly fee to replace the non-dom status.
Nadhim Zahawi, the former chancellor, has proposed the idea and had discussions with senior figures in No 10 this year about how it could work in the UK.
His proposal is for a much higher fee to be adopted in Britain, possibly as much as £150,000. It could raise significantly more for the Treasury than the current non-dom status.
Mr Zahawi told The Telegraph: “It will be fairer, it will raise more money and it will close the loopholes for people who should be paying tax here.”
However, it could leave the Government open to criticism that the ultra-wealthy can still come to the UK long-term and pay minimal tax – something limited in Labour’s own proposal to scrap the status.
Blow to Jeremy Hunt
The Telegraph revealed this week that the Treasury is considering abolishing non-domiciled status in the Budget next week.
The status allows foreign nationals who live in the UK but are officially domiciled overseas to avoid paying UK tax on their overseas income or capital gains for up to 15 years.
A Treasury source said on Thursday that the Office for Budget Responsibility had decided to downgrade the economic boost from the new Budget policies, in a blow to Jeremy Hunt.
It was claimed that the decision would leave the Chancellor having to find an extra £2 billion to deliver the announcements planned and still have government debt falling within five years.
Oil and gas windfall tax
Plans to expand the windfall tax on oil and gas companies, potentially bringing in billions of pounds in additional revenue, have also been drafted for the Budget, according to Bloomberg. It is unclear if they will be adopted.
Scrapping the non-dom status would help raise money for the tax cuts being planned and cause Labour a political problem, since £2 billion of spending is funded by that same move.
But there was a backlash from Conservative MPs on Thursday who dubbed it the “politics of jealousy” and questioned whether it would harm rather than help economic growth.
It can also be revealed that a former chancellor said the Treasury’s own analysis has shown that scrapping or reducing the generosity of the non-dom tax status would not generate more income and risks hurting the economy.
Lord Hammond, who was chancellor from 2016 to 2019 under Theresa May, told The Telegraph, in remarks given last year but published in full for the first time here, that the flagship Labour policy was unlikely to raise any money.
Lord Hammond said then: “I looked at non-doms. George Osborne did a big change around non-doms. The Treasury’s analysis when I was there suggested that we had gone about as far as we could go without starting to have a negative effect on the economy.
“You get to the point where actually you think you are taxing people more highly and you end up raising less tax. We would be there if we try and do anything else on non-doms.”
In Italy, foreigners who take up residency in the country are exempt from paying tax on income generated overseas in exchange for paying a €100,000 annual fee, plus €25,000 for each family member.
It was introduced in 2017 and by 2021 had resulted in 1,339 using the scheme, many believed to have sizeable wealth.
Tory MPs went public with concerns about scrapping the UK’s existing non-dom status on Thursday.
Harriett Baldwin, chairman of the Treasury Select Committee, said: “It’s vital that all taxes are set in such a way that they optimise UK tax revenues.
“Non-doms already pay a lot of tax here and you would need to be very careful as you would not want to see non-domiciled investors leave the UK along with all their tax revenues.”
Sir John Redwood, a former Tory cabinet minister, said: “The politics of jealousy doesn’t work.”
Sir Jacob Rees-Mogg, the former Tory business secretary, said: “It is an economically foolish idea and any political benefit would be trivial.”
