Labour's plan to raise revenue by reforming the non-dom regime may be "wishful thinking", according to experts.
Data from HMRC released this week (July 9), revealed there were 74,000 people claiming non-dom status in the tax year ending 2023, a slight rise from 68,900 in 2022, with the year-on-year increase partly being attributed to a continued recovery in new arrivals post-Covid.
The overall tax take, which was a combination of income tax, CGT and NI contributions was £12.3bn in 2023.
These figures come as Labour pledged to raise £5.2bn by closing what it called ‘non-dom tax loopholes’ and investing in reducing tax avoidance.
Rachel de Souza, partner at RSM UK believed it was a “dangerous assumption” for Labour to rely on raising significant amounts of tax from non-doms.
She said: “In total, only 2,400 individuals chose to pay the remittance basis charge in 2022 and it is from these people that the government is expecting to raise £3.2bn. On average that implies an additional tax yield of over £1.34m per non-dom.
“The number of non-doms paying the higher remittance basis charge of £60,000 has held steady at 500 in the five years to 2022. This suggests that relying on such a small number of taxpayers to plug the revenue gap may be wishful thinking.
“The statistics show that deemed domiciled taxpayers had UK tax liabilities of at least £3.4bn in 2023. We suspect this will fall dramatically by 2025 as a direct result of the changes to the non-dom rules as many of these individuals are internationally mobile.
“However, it’s unlikely we will be able to confirm the position as it will no longer be possible to collect the data once the non-dom status has been abolished.”
Elsa Littlewood, private client tax partner at BDO, said the data showed the growing number of people who will be affected by Labour’s plans.
“The abolition of the non-dom regime, which is really the abolition of the remittance basis of taxation, was initially proposed by the previous Conservative government which predicted that its changes would raise £2.7bn per year by 28-29.
“Labour’s manifesto made it clear that it too plans to abolish the remittance basis of taxation and replace it with a stricter regime than the one proposed by the Conservatives, although we don’t yet have full details.
“The government now has an opportunity to design a regime which is fit for purpose in a modern world, attracting entrepreneurs, talent and overseas investment into the UK to support growth for UK plc.
“Whereas the original proposals from the previous conservative government and the subsequent Labour announcements contain some sensible common-sense improvements, there are also a number of problems and potential missed opportunities,” she explained.
Littlewood said she had already seen a number of non-doms accelerate their plans to leave the UK and expected the number of departures to increase in the coming months as a result of the plans.
