Rachel Reeves is considering caving in to City lobbying and softening changes to inheritance tax that affect wealthy individuals who would previously have been “non-doms”, reports suggest.
In her autumn budget, the chancellor confirmed that she would scrap the non-dom tax status, which allowed wealthy individuals with connections abroad to avoid paying full UK tax on their overseas earnings.
“Those that make the UK their home should pay their taxes here,” she said at the time.
Her predecessor Jeremy Hunt had already sounded the death knell for non-dom status but Reeves’s changes were expected to raise an additional £12.7bn over five years.
She then announced minor adjustments to the transitional arrangements to the new regime at the Davos summit in January, after a backlash from some wealthy individuals.
However, Reeves is reportedly considering modifying changes that came into force in April that make the worldwide assets of all UK residents subject to inheritance tax at 40%, even if these are placed in trusts, according to a report in the Financial Times.
Responding to the report, a Treasury spokesperson said: “As the chancellor set out at spring statement, the government will continue to work with stakeholders to ensure the new regime is internationally competitive and continues to focus on attracting the best talent and investment to the UK.”
There have been reports of an “exodus” of wealthy individuals from the UK, although these have been questioned by some analysts – including in a recent study from the thinktank the Tax Justice Network.
The TJN’s chief executive, Alex Cobham, said: “We’ve only just laid bare the nonsense of one claimed ‘millionaire exodus’ and along comes another – it’s almost as if the lobbyists for not taxing extreme wealth don’t actually care about the evidence.
“The chancellor has access to by far the best data on taxpayers’ decisions, so she will know better than anyone just how little millionaire migration actually takes place. It’s well past time to stop listening to the self-serving fairytales of the City.”
When it projected the revenue from closing non-dom loopholes at Reeves’s autumn budget, the independent Office for Budget Responsibility allowed for an additional 12%-25% of non-doms to leave the UK this year.
However, Reeves is keen to mollify wealthy global investors, as the Treasury is determined to attract foreign investment into the UK as part of its mission to kickstart economic growth.
She already faces a challenging fiscal picture in the run-up to the autumn budget, as the OBR is expected to revisit its optimistic productivity forecasts, potentially downgrading growth projections as a result.
