Labour’s Rachel Reeves says Labor will go further than the Tories on the controversial issue of “non-domiciled” tax status after Jeremy Hunt formally scrapped the measure in March’s spring budget further.

Mr Hunt announced an overhaul of the current system, scrapping effective tax loopholes and setting up a stricter system, but Labor argued the changes were too lax and loopholes remained.

Shadow chancellor Reeves said Labor would further tighten new non-domestic rules, with a party source saying they wanted to replace the Tories’ “semi-skim” measures with “full fat” measures.

Last year, issues surrounding people with non-resident tax status came into focus again. independent Rishi Sunak’s wife Akshata Murty has been revealed to have used the loophole to evade millions in UK tax.

Research from the London School of Economics found that removing special exceptions would increase government funding by more than £3.2 billion a year. Their prediction is that only 0.3% of non-residents would leave the country in this scenario.

However, the Institute for Fiscal Studies warned the chancellor to “proceed with caution” when removing it.

The research team noted that around 37,000 people in the UK claimed non-domestic tax exceptions but still paid a total of £6bn in UK tax. They believe any major changes could cause many of them to leave the country – taking those earnings with them.

Here we take a look at everything you need to know about non-dom status:

What is a “non-dom” tax status?

The UK’s “non-resident” tax system was first introduced in 1799 and has been refined over the years and has come under scrutiny in recent years.

An “undomiciled individual” is a person who is resident in the UK but not permanently settled in the UK. They will only pay UK tax on money earned within the UK and can avoid paying tax on their overseas earnings if they choose to claim a ‘remittance basis’.

This allows wealthy people living in the UK to choose a country with lower tax rates as their residence, thereby saving significant amounts of money.

You can apply for this status in two ways. Firstly, if you were not born in the UK, or your father is from another country. The only other way is if you are over 16 and choose to leave the UK to live somewhere else permanently.

If you are non-resident and choose not to pay UK tax on your overseas income, you must pay:

You will no longer be able to apply for non-dom status after having lived in the UK for 15 of the past 20 years.

Non-residents who do not benefit from a remittance basis are only subject to UK tax on their overseas income (over £2,000).

Several other countries have similar tax systems that provide special rights to non-residents.

Other countries with special “non-dom” tax systems

not just britain

How has the tax status of non-residents changed – what does Labor propose?

Mr Hunt announced the Conservatives planned to scrap “outdated” non-domiciled tax status in March’s spring budget and instead introduce a “residence-based” system. While this technically overhauls the system, the transitional arrangements mean it’s not a complete solution for non-residents living in the UK either.

The changes will take effect from 6 April 2025, when the new Foreign Income and Gains regime (FIG) replaces remittance-based tax status. This still allows individuals coming to the UK to avoid paying UK tax on overseas earnings, but now only for four years.

After four years, they will start paying the same taxes as everyone else.

As part of the transition arrangements, the government is giving non-residents the chance to place overseas funds into a family trust before an April deadline to avoid paying inheritance tax. In the first year of the program, they pay only 50% tax on foreign income.

Labor has disputed the transitional elements and Ms Reeves believes repealing the measures could raise a further £2.6 billion, which she said Labor would use to fund the NHS and schools.

How many non-dom people live in the UK?

In April 2023, there were 68,800 non-residents living in the UK, of whom an estimated 37,000 claimed special ‘remittance basis’ tax status.

As an Indian citizen, Ms. Murthy remains an undomiciled individual. However, after her tax arrangements came to light, Ms Muti chose to start paying UK tax on all her worldwide income going forward and in the 2021/22 financial year.

The Prime Minister’s wife issued a statement at the time, acknowledging that her tax status was “incompatible” with Mr Sunak’s political role and that she appreciated “the British sense of fairness”.

It is estimated that over several years she evaded up to £20 million in UK tax on dividends received from Infosys, the Indian IT company founded by her father.

Fellow Conservative Zac Goldsmith had non-resident tax status until he became an MP in 2009, but gave it up under media and political pressure. He inherited his father’s position.

Other notable non-doms include: oligarch and former Chelsea FC owner Roman Abramovich, media tycoon Viscount Rothermere and AstraZeneca CEO Pascal Soriot.