Jeremy Hunt mirrors Labor policy by scrapping non-domestic tax rules

Jeremy Hunt scraps UK tax breaks for non-residents, a shift that reflects Labour’s policies, with the chancellor saying it was because he believed “those with the broadest shoulders should pay a fair share” share”.

The existing rules, a holdover from colonial times, allow some 70,000 foreigners living in the UK to avoid paying UK tax on their overseas income and gains. Starting next year, new immigrants will only be able to avoid tax on overseas earnings during their first four years of residence.

Rishi Sunak’s wife Akshata Murty, one of the most prominent undocumented residents, is reportedly recusing herself ahead of the Budget to avoid potential conflicts of interest policy negotiations.

However, Hunter decided to exempt foreign assets held in trusts by non-residents from inheritance tax. Muti’s family and others currently registered as non-residents will benefit from the measure. A window has also been created for non-residents who wish to avoid estate taxes to place assets into a trust before April 6.

Hunt told MPs the new “modern, simpler, residence-based system” would raise £2.7 billion a year. But he said transition arrangements would be put in place for those who benefited from the current regime, “recognizing the contribution many of them have made to our economy”.

This will include encouraging individuals to bring overseas wealth to the UK over a two-year period, a measure the chancellor said would attract an extra £15 billion in foreign income and generate more than £1 billion in additional tax revenue.

Hunt has been an outspoken opponent of removing the status in the past, saying in 2022 that he would “rather wealthy foreigners spend their money in the UK”, sparking opposition when he claimed he had been considering the issue for years MP’s laughter. months. Sunak himself claimed in 2022 that removing this status would ultimately “cost the UK money”.

People registered as undomiciled with HMRC do not pay UK tax on income and capital gains earned overseas (including company shares or cash from the sale of a second home) unless they bring the money into the UK or deposit it into a UK bank account.

Murthy has been a non-resident of the UK as an Indian citizen, but she has “voluntarily” paid tax on the income she earns from a stake worth about £750m in her family’s IT empire. The Guardian reported in 2022 that she received millions of pounds in annual dividends from her Infosys shares and potentially avoided paying up to 20 million pounds in UK tax on that income.

Current rules allow those claiming tax relief to enjoy tax relief for up to 15 years. But they must pay tax of £30,000 a year, which is rising. These fees mean tax breaks are valuable only to the wealthiest people.

Three in 10 people earning more than £5 million use a non-DOM identity, compared with just three in 1,000 people earning less than £100,000.

However, other details not mentioned in Hunt’s speech softened the blow for some of the richest people, while data from a team of academics on which Hunt’s £2.7bn figure was based said many would still be motivated Invest overseas.

Arun Advani, assistant professor of economics at the University of Warwick, added: “This new policy will raise money, be fairer and be less likely to cause many people to leave the UK.”

“Moving to a resident system makes everything more modern, newer and simpler to operate. But the main problem is disincentives for investment in the UK.”

The government also effectively missed an opportunity by giving existing non-residents the option to “redetermine” the value of capital assets before April 5, 2019. This means they will only be taxed on any gains after that date.

“So it does seem to be a giveaway that if people held assets for the long term before April 2019 started, all the gains would be wiped out,” Advani said.

Current non-residents can also avoid estate tax by placing foreign income in a trust. While the government has promised to consult on this, a Treasury briefing note makes it clear that anyone who holds trust assets before 6 April 2025 will have them permanently excluded from the death tax net.

Mr Hunt said scrapping the non-domiciled break would help provide tax cuts for “working families” rather than Labour’s spending pledges, which have pledged to put money into public services including the NHS.

A Labor spokesman said the party stood by its spending plans to be funded by scrapping non-domestic tax status, and described Hunt’s announcement as a “shameful U-turn” that would have delivered billions of pounds if it had been announced years ago. Funding earlier.

However, there is unease among Conservative MPs of different colours. Right-winger Jacob Rees-Mogg said the government wanted as many billionaires as possible to come forward, adding: “Attacking them and making their situation more difficult could mean stealing from Labour.” clothes, but that’s not good economic policy.”

Stephen Hammond, a leading member of the party’s One Nation centrist wing, said: “I’ve always been very worried about political shenanigans and I guess most people think they’re doing it to stop Labor spending money, not to stop Labor spending money. .” rather than tax reform. I doubt this is a good idea. “