Labour's flagship policy to scrap the non-dom tax status may fail to raise any additional revenue for the Treasury, potentially leaving a £1bn hole in the party's planned spending on schools and hospitals. The government had intended to use the proceeds from wealthy individuals registered overseas for tax purposes to fund improvements to public services.
Treasury officials fear that the Office for Budget Responsibility (OBR) is poised to conclude that the measure could actually cost the government revenue, rather than raise it, because of the number of super-rich non-doms expected to leave the UK or find ways to mitigate the changes. The OBR originally forecast that scrapping the tax break could raise about £3.2bn a year, but described the estimate as highly uncertain.
The policy was initially proposed by Labour, but was adopted by the Conservatives in March 2024, who announced a phasing-out of the regime. Labour has said it would go further by removing a 50% discount in the first year of the new rules and making inheritance tax payable on foreign assets held in a trust. The party previously predicted its changes could raise an initial £1bn in the first year, to be spent on universal school breakfast clubs and additional hospital and dental appointments.
Chancellor Rachel Reeves is understood to be minded to press ahead with the tax changes at next month's Budget, having made the moral case for the super-rich to contribute more. A Treasury source said ministers would listen to what the OBR says on tax, with the priority being to raise revenue. Conservative sources have long claimed that the sums expected by Labour will not materialise, pointing to analysis suggesting that removing trust protections from inheritance tax would raise only £50m-£100m a year.
However, some economists argue that warnings of the super-rich fleeing the UK are overblown. Arun Advani, an associate professor at Warwick University who has advised the government on tax, cited the comparative lack of emigration following similar changes in 2017, when the number of non-doms leaving increased from about 5% to 10%. He noted that the vast majority of non-doms are in the UK to work as bankers, footballers or chief executives, and that for most, leaving would not be financially sensible.
Separately, Rachel Reeves is considering changing how the government's fiscal rules are calculated in October's Budget to allow billions of pounds more in capital spending.
