Chancellor Rachel Reeves has indicated the Labour Government will be making an U-turn on one of her controversial tax decisions which was announced during the Autumn Budget.
Specifically, Reeves has asserted she is open to relaxing the rules impacting the “non dom community” in a move to stop wealthy taxpayers fleeing the UK while appearing at the World Economic Forum in Davos earlier today.
Under the current HM Revenue and Customs (HMRC) regime, non-doms are able to avoid pauing UK tax on their overseas earnings in exchange for frees for up to 15 years.
Non-domiciled individuals are usually wealthy people who live in the country but are not legally domiciled, providing them with certain tax advantages.
During her fiscal statement in October 2024, the Chancellor announced plans to replace current rules with a shorter residence-based regime from April 2025.
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The Chancellor is making a shocking U-turn on one of her more controversial tax proposals
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During an interview with The Wall Street Journal’s editor-in-chief Emma Tucker, the Chancellor said: “We have been listening to the concerns that have been raised by the non-dom community.”
Under the proposed changes, the tax rules relating to the temporary reparation facility would be altered. This is a transitional agreement that will last for three years from April.
Previously announced by her predecessor, Conservative Chancellor Jeremy Hunt, this facility will allow non-dom individuals to come in with foreign income into Britain and pay a reduced tax rate.
As part of her Autumn Budget, Rachel Reeves extended the facility from two to three years, however her latest comments suggest the policy change is not set in stone.
In response to the tax changes, wealthy individuals residing in the UK had criticised that the tax rules surrounding the facility have been too strict.
Notably, those impacted have cited the stricter non-dom rules do not include certain types of investment funds with the Treasury appearing to be responding these complaints.
Non-dom individuals will pay 12 per cent tax on any overseas income brought into the country for the first two years and 15 per cent in the following year.
It is understood that the change to tax policy is not a direct response to reports of rich foreigners fleeing the UK, according to The Treasury.
Labour Business Secretary Jonathan Reynolds reiterated the Government’s U-turn in relation to non-dom rules while speaking to journalists.
He shared: “There is a tweak to the finance bill. Of course, when you’re changing a tax regime, people will want to know, and there’ll be some uncertainty there, so we’ve got to get that message out.
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The Chancellor has announced various changes to tax policy during her short tenure
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“We have a great pitch to make. We are talking to people who want to invest in the UK who are, I think seeing, first of all, our pitch to political stability, certainly relative to other European countries, and our commitment to openness.”
A Treasury spokesperson said: “While we do not expect these changes to impact the £33.8billion of tax revenue that the OBR forecast to raise over five years, they reflect our continued engagement with stakeholders to make sure the reforms announced at budget operate as intended.
“The temporary repatriation facility is designed to encourage non-doms to bring their funds to the UK, encouraging them to spend and invest this money here.”
