Labour have sought to exploit the recent row over Chancellor Rishi Sunak’s family finances as they vowed to abolish non-dom tax status.
Ahead of next week’s local elections, the party’s shadow chancellor Rachel Reeves today pledged to end ‘outdated’ tax perks.
She declared that those who make Britain their home should have to pay tax on their earnings.
At the beginning of this month, Mr Sunak’s billionaire heiress wife, Akshata Murty, was revealed to have non-dom tax status.
This meant she was able to legally avoid paying a huge UK tax bill – estimated to be as much as £4.4m last year – by paying £30,000 a year to register as based in India.
Health Secretary Sajid Javid, who was Mr Sunak’s predecessor as Treasury boss, later revealed that he himself had enjoyed non-dom status before he entered politics.
The non-dom status of Mr Sunak’s wife was revealed on the same day as the Chancellor’s increase of National Insurance contributions for millions of Britons came into effect.
Following a heated row that threatened to endanger her husband’s career prospects, Ms Murty later announced she would give up her non-dom status.
Chancellor Rishi Sunak’s billionaire heiress wife, Akshata Murty, was recently revealed to have non-dom tax status
Ahead of next week’s local elections, Labour leader Sir Keir Starmer is promising to abolish non-dom tax status
Shadow chancellor Rachel Reeves today pledged to end ‘outdated’ tax perks and declared that those who make Britain their home should have to pay tax on their earnings
Labour had previously promised to abolish non-dom status under ex-leader Jeremy Corbyn and former shadow chancellor John McDonnell. Mr McDonnell recently questioned why Labour had been slow to recommit to the policy
What is ‘non-dom’ status?
Non-dom tax status typically applies to someone who was born overseas, spends much of their time in the UK but still considers another country to be their permanent residence or ‘domicile’.
In Akshata Murty’s case, she would need to be claiming that the UK is not her permanent residence.
Citizenship of an individual living in the UK is irrelevant when it comes to non-dom status as it is possible for a UK citizen, or someone born in the UK, to claim they are a non-dom.
According to Home Office guidance: ‘A person can change nationality without it affecting their domicile, or could acquire a change of domicile whilst retaining their original nationality.
‘The fact that a person has acquired a new nationality can be a relevant factor in showing a change of domicile, but is not conclusive, depending upon the reasons for the change. If a person gives up their former nationality it may suggest a change of domicile.’
Status is not given automatically because an individual must apply for the exemption in their tax status when filling out their UK tax return.
According to the Government, a person’s domicile is usually the country where their father considered his permanent home when the individual was born.
In Ms Murthy’s case, she was born in India, so she ticks the first box for claiming she is not domiciled in the UK.
Others can also inherit their domicile from their parents, meaning they can still be born in the UK but have non-dom status.
When evaluating someone’s domicile, the taxman will consider a number of factors, including permanent country of residence and how long an individual intends to stay in the UK.
When it comes to tax, the rules state that you do not pay UK tax on foreign income or gains if they are less than £2,000 a year and you do not bring them into the UK.
If you earn more than £2,000 from overseas or bring any money into the UK you must pay UK tax on it – although this may be claimed back.
Or you can pay an annual charge, depending on how long you have been in the UK.
The charges are £30,000 if you have been in the UK for at least seven of the last nine tax years, or £60,000 for at least 12 of the previous 14 tax years.
Therefore, if you are resident in the UK but a citizen of another country, you must still pay a fee.
For high net-worth individuals, many will opt for the yearly charge because the income received from foreign businesses and investments is likely to lead to a far higher tax bill.
Ms Reeves said today that a Labour government would abolish the ‘broken 200-year-old system’ of non-dom status and replace it with a ‘modern scheme’ for people who are living in the UK for short periods.
‘As the Tories raise taxes on working people, it simply isn’t right that those at the top can benefit from a outdated non-dom tax perks,’ the shadow chancellor said.
‘With Labour, people who make the UK their home will contribute to this country by paying tax on their global income.
‘The Prime Minister and Chancellor have spent the last few weeks preoccupied with saving their own skins, and have done nothing to tackle the spiralling cost of living.
‘Even worse, they’ve made it harder for working people to make ends meet by hiking National Insurance.
‘Labour is on your side. We will tax fairly, spend wisely, and grow the economy.’
Ms Reeves also promised a Labour administration would crack down on the use of hidden offshore trusts that allow people to avoid paying tax in Britain, as well as fast-track the publication of a register of overseas beneficial ownership of property in the UK.
Labour said this was ‘crucial’ for preventing companies’ true owners from carrying out their tax affairs in secrecy, including those from sanctioned states such as Russia.
The Opposition’s move today – as well as turning up the heat on the Chancellor amid the cost-of-living crisis – will be seen as an attempt to shut down a fresh rift between allies of leader Sir Keir Starmer and the party’s Left.
They had previously been demanding to know why Sir Keir and his shadow minsters were mired in confusion over whether Labour still backed abolishing non-dom status.
This was a policy held by the party under ex-leader Jeremy Corbyn and former shadow chancellor John McDonnell, as well as Mr Corbyn’s predecessor Ed Miliband.
Prior to today, despite their fierce criticim of Mr Sunak, Sir Keir’s shadow ministers would only point to Ms Reeves’ ongoing review of Labour’s tax policy when asked what they would do about non-dom status.
Earlier this month, Mr McDonnell said it was ‘hard to understand’ why Labour was refusing to commit to abolish non-dom status, which had been pledged in the party’s 2019 general election manifesto.
Momentum, the Left-wing group that formed out of Mr Corbyn’s two leadership campaigns, had also questioned why Sir Keir was failing to re-commit to the policy.
But there were signs that Ms Reeve’s announcement today had still to resolve the internal row.
A source from Labour’s Left told MailOnline that the party were ‘not really abolishing non-dom status’ as they pointed to Ms Reeves’ promise to replace it with a ‘modern scheme’.
They said this was ‘based on a “race to the bottom” approach to taxes which encourages loopholes, and allows the wealthiest to profit at the expense of working people, who are rightly outraged that it’s one rule for the rich and another for the rest of us’.
The row over Mr Sunak’s wife’s tax affairs came shortly before the Chancellor was forced to admit he held a US Green Card for more than 18 months while in charge of the Treasury.
Mr Sunak later requested that Christopher Geidt, the independent adviser on ministers’ interests, examine his past declarations.
Prime Minister Boris Johnson repeatedly refused to intervene in the row over Ms Murty’s non-dom status.
He told reporters earlier this month: ‘I think it is very important in politics, if you possibly can, to try and keep people’s families out of it.’