Jonathan Reynolds, shadow business spokesman, has vowed that a future Labour government would create a modern tax system for people genuinely living in the UK for a short period of time, to replace Britain’s “colonial-era” non-dom regime.
Reynolds, on a visit to India, said a Labour government would seek to attract people from around the world who can bring “ability, talent and innovation” to Britain, but added: “I don’t think we need to be supplicants.”
Speaking at the Taj Mahal Palace Hotel in Mumbai, he noted that the current non-domiciled tax regime was originally designed for British colonialists, some of whom would have docked by the Gateway of India monument, located nearby.
“The case for modernisation is clear,” he told the Financial Times, while acknowledging that Britain needed to retain a competitive tax regime to ensure it remained attractive to global talent.
The non-dom regime allows foreign domiciled nationals resident in Britain to earn money from capital abroad without paying UK tax on it for up to 15 years, provided they do not remit any income or capital gains back into the country.
Labour is now looking at an alternative — less generous — regime, for people based overseas and living in the UK for perhaps up to four years, party officials said.
Labour had originally suggested that scrapping the non-dom system completely would raise £3.2bn, if it forced “non-doms” to pay tax on their worldwide income and capital gains.
Party insiders said there would be a consultation on the new regime, and the possible four-year exemption could raise more than £2bn: this lower sum reflected the cost to the exchequer of setting up an alternative scheme.
£2bnPotential tax raised from moving to a four-year exemption for non-doms
Reynolds said of the plan to scrap the non-dom regime: “It’s a change we are absolutely committed to. Of course, we will replace it with a modern regime for people who are going to be in the country for a short period of time.”
He added: “I don’t think we need to be supplicants. We have great things to offer — whether it’s the attractiveness of London as a financial centre, the talent in our universities.”
In addition, Reynolds, a former shadow City spokesman, said Labour would also consult the private equity industry over the precise operation of new tax rules for the sector.
He said it was “absolutely right” to close a loophole that allows carried interest to be taxed as capital gains rather than income, but said: “We will work with the sector on the implementation of that.”
Last week, a spokesman for shadow chancellor Rachel Reeves insisted a Labour government would charge the top 45p rate of income tax on profits that private equity bosses earn on successful deals.
At present, “carried interest” payments received by private equity executives are taxed at the 28 per cent rate of capital gains tax. But there is a live debate inside the party on how the regime is structured.
Labour has already committed to capping corporation tax at 25 per cent for the next parliament.
Reynolds, who spent four days in India meeting investors and politicians, conveyed a message that Labour would build on Britian’s strengths and bring “consistency” of policy after years of turmoil.
He said that, if Labour won Britain’s election, it would build a country that was “looking to the future”, building stronger relations with the EU and with trading partners like India.
Christopher Groves, partner at law firm Withers, said the current non-dom regime did not do enough to attract talented, entrepreneurial people to the UK.
As a result, many wealthy non-doms were increasingly looking outside the UK to other options. He said: “The whole system is ripe for an upgrade.”
His firm has identified Italy, Portugal, Switzerland, Spain and Greece as the most popular European choices.
Each regime has its own features and rules and regulations. For instance, in Italy, a new tax resident can make an annual tax payment of €100,000 to shelter their foreign earnings and gains from Italian tax for up to 15 years.
Meanwhile, Portugal has a non-habitual resident regime designed to attract highly qualified workers and investment. This offers tax exemptions on some foreign sources income and a flat tax rate of 10 per cent on pensions from a foreign source.
In April 2022, Rishi Sunak’s wife, Akshata Murty, was forced to change her tax arrangements, announcing that she would pay UK taxes on all of her income after it was revealed she held “non-dom” status.