UK non-doms: what are the main political parties saying?

The taxation of 'non-doms' is not a new political talking point but in recent months focus on this question has increased markedly due, perhaps in part, to the political turmoil that engulfed the Prime Minister (then Chancellor) last year in respect of the non-dom regime.

In last week's article, we explained why domicile (which differs from tax residence) matters in the UK and what it means to be taxed on the remittance basis.  Very briefly, remittance basis taxpayers only pay UK income and capital gains tax on their income and gains which have a UK source (e.g. dividends from UK companies and interest on UK bank accounts).  They also pay UK tax on the non-UK income and gains which they choose to bring into or otherwise use in the UK.  Everything else – i.e. non-UK source income and gains which are left outside UK – is sheltered from UK taxation for so long as the individual remains a remittance basis taxpayer.  The remittance basis cannot be claimed indefinitely – after 15 years of continued UK tax residence, an individual can no longer enjoy it, even if they remain non-UK domiciled in the general legal sense. 

There is no arguing that this regime is of financial benefit to remittance basis taxpayers.  But one of the key political and economic questions is whether keeping the remittance basis is of overall net benefit to the UK economy and/or Treasury.  In this article, we take a look at some of the major parties' stated positions on the taxation of non-UK domiciliaries.

Conservative

Many tax advisers had anticipated that the Chancellor could announce at the Spring Budget a comprehensive review of the non-dom regime or a reduction of the 15 year limit.  This did not come to pass and the Conservatives have studiously avoided comment on the regime since.  This is understandable in a political environment in which the non-dom regime has become something of a political football, but is unlikely to be sustainable.  

The Financial Times did report in September last year a Treasury press statement on the topic (the wording of which appears to have been lifted from a 2016 Conservative government consultation report), namely that 'the tax regime for non-doms is an important feature of our internationally competitive tax system and the government remains committed to encouraging people to live and work here.'

The current position mirrored the run-up to the 2015 General Election where Ed Miliband's Labour Party campaigned on a policy 'to abolish non-dom status so that all those who make the UK their home pay tax in the same way as the rest of us', while the Conservatives responded by committing to 'increase the annual tax charges paid by those with non-domiciled status, ensuring that they make a fair contribution to reducing the deficit, and [to] continue to tackle abuses of this status'.  After the election, George Osborne followed through on this and ended the remittance basis regime for non-doms after 15 years of residence.

So, it seems unlikely that we will see a proposal for any significant overhaul of the regime from the Tories right now – but with this being an area of sensitivity for the PM, could their hand be forced in the run-up to the next election?  It would come as little surprise to see the Conservatives announce a consultation in the Autumn in order to be seen to be doing something before the next election and to take the fire out of Labour's messaging on this issue. 

Labour

In the midst of the political maelstrom which followed the reporting on non-doms in April last year (in which former health secretary Sajid Javid was also identified as a taxpayer who had benefited from the status), Labour announced that it would scrap the non-dom regime altogether.  

Since then, Keir Starmer's party has sought to expressly associate the non-dom regime with what it claims is lost tax revenue for the Treasury (despite it being tricky for economists to clearly establish such a connection).  At Prime Minister's questions in December, in the context of a question about the nurses' strike, Mr Starmer said Labour would use extra funding from the abolition of the non-dom regime to pay for public services.  The Guardian reported in July last year that Anneliese Dodds, the Labour chair, had written to her Conservative counterpart asking for an assurance that Tory leadership candidates reveal, among other things, whether they have ever been taxed as a non-dom.  And Labour's recent adverts are making the most of what appears now to be a commonly held misconception that the PM himself (rather than his wife) was a non-dom.

It appears now that Labour plans to replace the non-dom regime with a different type of beneficial tax regime for incoming workers.  In April last year, the shadow Chancellor Rachel Reeves announced Labour would bring in 'a modern scheme for people who are genuinely living in the UK for short periods to allow us to continue to attract top international talent'.  These words were repeated verbatim by a Labour MP during an Opposition Day debate on the non-dom regime last January (sparked by Labour's demand to see Treasury analysis on the effect of abolishing the regime).  So, while the details of Labour's proposed scheme remain to be elaborated publicly (with, most importantly for those coming to the UK, an indication of how long one could benefit from it), it appears tolerably clear that a replacement scheme of much more limited duration, and perhaps narrower scope, will be Labour's policy at the next election. 

Liberal Democrats

The return of the Liberal Democrats to their 2010 role of kingmaker at the next general election is conceivable, and so it is worth looking briefly at any of their stated views on the non-dom regime.

While the Liberal Democrats have been relatively quiet on the non-dom issue, as compared with Labour, during the media furore in April last year, their Treasury spokesperson did argue that 'failure to close this loophole' left 'the door open for government ministers to exploit non-dom arrangements'.  It was reported that the Liberal Democrats want the immediate family members of government ministers to be prohibited from claiming the remittance basis (as is currently the case for government ministers themselves), unless they are nationals of countries with particularly inflexible tax rules and no double taxation arrangements with the UK.  This falls well short of arguing for an abolition or replacement of the whole system – but if we do have another hung parliament at the next election, it is difficult to see the Liberal Democrats fighting hard against Labour's non-dom plans during the inevitable horse-trading when other (arguably more consequential) economic and political topics are on the table.

What next?

Over the past 12 months or so, with their attack ads on the Prime Minister Labour have pushed their message about the perceived unfairness of the non-dom regime.  We may well see the Conservatives adopt a middle position (such as a reduction in the 15 year time limit for claiming the remittance basis) in order to take the force out of Labour's argument about fairness prior to the election, particularly if the difficult economic circumstances in the UK persist.  In any event, taxpayers relying on the remittance basis should keep in touch with their advisers so that they are not caught out by any sudden change in the rules.

If you are considering moving to the UK and would like advice on the UK's system of taxation, as well as how this interacts with your tax exposure internationally, please do get in touch.