Letting the wealthy pay a tiny fraction of their earnings to avoid UK tax while ordinary people face a rising burden is unfair
Rachel Reeves, Labour’s shadow chancellor, took a small step in the right direction by promising to get rid of non-domiciled tax status. This announcement – ahead of local elections – had three prongs. First, it helps rally Labour’s traditional voters who see very rich people benefit while they struggle with tax rises and the cost of living crisis. Second, the pledge refocuses voters’ attention on Ms Reeves’ political opponents such as the chancellor, Rishi Sunak, whose wife avoided paying up to £20m in UK tax as a non-dom; and Sajid Javid, the health secretary, who held non-dom status for six years while a banker. Third, it provides evidence that Ms Reeves’ review of taxation might be more radical than previously imagined.
The worry is that there may be less to the plan than meets the eye. Britain should scrap the exemption, an archaic legacy of empire in which benefits are largely determined by paternal lineage. Non-doms don’t pay tax in Britain on income generated abroad. Yet Ms Reeves plans to replace this perk with a “temporary resident tax regime” similar to that in countries including France, Germany and Canada. Labour says that it would consult on its proposals but aims to offer tax advantages to such residents for five years, compared with up to 15 years under the current system. Such proposals are not new. As Labour leader, Ed Miliband proposed a similar exemption to avoid deterring talented foreigners.
