This pledge refers to the tax regime that is designed to limit liability to UK tax on worldwide income and on gains for those individuals who qualify for non-dom status.
In September 2022, researchers published a paper that estimated that the abolition of the tax regime for non-doms would raise tax revenue of £3.2bn from 26,000 people.
An individual needs to be UK tax resident before they are subject to the default position of UK tax on their worldwide income and gains.
Since April 2013, determination of tax residence has become complicated but can be determined by a statutory residence test. Contrary to popular misconception, an individual can be tax resident even if they are not present in the UK on 183 days of a tax year.
There is much to be said for the attractiveness of a stable UK tax system, and there are drawbacks to continued change.
The Labour party has suggested that post abolition of non-dom tax status, a replacement tax regime for people who are temporarily in the UK would be introduced. This is an acknowledgement that other countries provide tax incentives for some individuals to move their tax residence to their jurisdiction.
But what should a replacement tax regime in the UK look like?
So far Labour has not volunteered any details. Any significant change would require consultation as part of a new tax regime’s development and implementation.
Potential target of a reformed special tax regime
The obvious starting point is in-bound expatriates. This group of people is wide and might include employees of global organisations in the financial services industry, clinicians in the NHS, established entrepreneurial businesses expanding to the UK, or innovative individuals investing in the UK.
One common theme among this category of expatriates is that they will be earning income from work, either as employed or self-employed individuals.
With the increase of so-called digital nomads, there is an argument that a reformed tax regime must include people who choose to come to work in the UK and contribute to the economy.
The period during which such a replacement regime would apply to a person is up for debate; the suspicion is that it would be around five years, which would be competitive with countries such as Spain which has special tax rules for in-bound expatriates.
However, the estimated tax revenue halves to £1.6bn if the existing remittance basis is kept for non-doms in a reformed regime that retains existing tax benefits for five years.
What types of tax incentives might apply?
A reformed tax regime could focus on having a reduced tax rate for the period during which it applies, whether that is for five years or less.
For instance, the current top rate of income tax for those earning more than £125,140 from employment is 45 per cent (ignoring national insurance contributions).
A reformed special tax regime could give a reduced top rate of income tax of, say, 25 per cent on any non-UK income for the first five tax years of moving to the UK.
