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Labour’s non-dom policies risk cutting off the country’s nose to spite its face:
- There may be over a million non-doms in the UK, contrary to Miliband’s claim that there are 116,000; most of them are not rich people but foreign workers and students.
- The UK’s non-dom system is not unique; countries like Australia, Japan and China all have tax systems that focus on local income for non-permanent residents.
- The existing crackdowns on non-doms introduced by Labour (and supported by the Tories) have ended up particularly hurting less well-off non-doms (e.g. migrant doctors) while hitting the super-rich comparatively less.
A new briefing paper from the Adam Smith Institute debunks the oft-quoted claims being made by politicians about non-doms and highlights the potential financial risks associated with Labour’s proposed changes to the rules.
The paper “Non-Sense: examining the arguments and rhetoric around non-dom tax provisions” explains how Miliband’s proposed changes to the tax rules could cut government revenue, drive away investors and risk hurting middle-income migrant workers registered as non-domiciled in the UK.
The paper argues that recent reforms to non-dom tax laws, whereby one has to pay £30k after seven years of residence in order to be taxed on the remittance basis, has ended up hurting relatively less wealthy non-doms and has done very little to the very wealthy ones.
The further changes proposed by Miliband could push Britons to become ‘domiciles’ more quickly in other countries and deprive the UK the inheritance tax such people would have paid had they been domiciled in Britain. These changes would also affect many other parts of the law, such as family law, which depend on domicile status; such changes would have far-reaching implications, such as disputes over guardianship of children.
The paper explains that the status of non-dom is affiliated with any person who does not intend to remain in the UK indefinitely. International hedge fund managers, transfer students from Kenya, and Indian doctors working for the NHS are all considered non-doms. Potentially there are over one million non-doms residing in the UK, not 116,000 as Miliband claims. Most of these residents are not wealthy, but rather normal earners and students.
It is also not the case that the UK’s non-dom system is virtually unique in the world. Several former British colonies have exactly the same system as the UK, for example Ireland, Malta and Jamaica. Other countries such as Australia, China and Japan tax only local income for non-permanent residences as well.
Head of Research at the Adam Smith Institute Ben Southwood said:
Cracking down on non-doms may sound nice but proposals that sound nice aren’t always good policy.
Miliband’s scheme risks making both the UK and the Treasury poorer and less fair.
Scrapping non-dom status does make it easier for the Treasury to claw in the foreign earnings of people who intend to stay in the UK temporarily, but it also makes it harder for them to keep a hold on Brits who leave intending to come back.
Thankfully policymakers are not so easily swayed and MPs are often effective gatekeepers to populist wheezes – there is at least a chance this one will be stopped as well.
Notes to editors:
Read “Non-Sense: examining the arguments and rhetoric around non-dom tax provisions” here.
The Adam Smith Institute is a free market libertarian think tank based in London. It advocates classically liberal public policies to create a richer, freer world.