Jeremy Hunt is considering scrapping or scaling back “non-dom” tax rules as he attempts to raise billions of pounds to fund cuts to national insurance in his spring budget.
The chancellor has already significantly scaled back his planned cuts after official forecasts suggested that he will have far less money to spend than expected.
The state of the public finances has forced Hunt to look for new sources of revenue for his budget on March 6. Scrapping the non-domiciled tax regime would raise an estimated £3.6 billion a year.
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Those who have benefited from non-dom status include Lakshmi Mittal, the steel magnate, and Roman Abramovich, the former owner of Chelsea football club who was sanctioned by the government.
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The announcement is likely to be particularly contentious as Labour had already declared plans to scrap the tax break. Hunt criticised Labour for doing so at the time.
It is also a deeply political issue. Sir Keir Starmer, the Labour leader, has previously accused Rishi Sunak of clinging on to his “beloved non-dom status”. Sunak’s wife, Akshata Murty, also benefited from the regime in the past.
Under current rules foreign nationals who are domiciled abroad but live in Britain do not have to pay tax on their foreign income for up to 15 years. According to official figures there were 68,800 non-doms in Britain in the year ending 2022.
That same year Labour announced its plan to scrap rules that allow some wealthy individuals living in Britain not to pay tax on their foreign earnings. At the time the party cited research by the London School of Economics and the University of Warwick suggesting that the change could raise as much as £3.2 billion a year.
However, the party has since changed its position. Labour has concluded that it will base its calculations on revenue on the basis that individuals will be able to live non-dom in Britain and avoid tax on foreign earnings for up to four years, before paying full UK tax. Under the calculations from LSE, that would raise £2 billion a year. This, sources said, would avoid penalising people who were genuine temporary residents.
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Hunt will put significant pressure on Rachel Reeves, the shadow chancellor, if he pushes ahead with scrapping non-dom status. Labour has already committed to spending revenues raised from scaling back non-dom status on the NHS and other priorities.
The move, first reported by the Financial Times, would likely cut national insurance by 2 per cent, repeating the cut Hunt announced in the autumn statement in November, but doing so would cost about £10 billion a year.
He is expected to announce a specific tax on vapes to raise revenues, with a corresponding rise in tobacco duty. The two measures would together raise more than £500 million a year by 2028-29.
The chancellor’s approach will depend on forecasts from the Office for Budget Responsibility. The final forecast before the budget is due on Friday.
George Osborne, the former chancellor, said this week that if he were in government he would be looking to “steal Labour’s clothes” by scrapping the non-dom regime.
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He told his Political Currency podcast: “If I was the chancellor I would definitely be looking to do something on the non-dom regime that hopefully didn’t kill the golden goose that lays the golden egg of having international visitors to Britain that invest in this country, but nevertheless takes money off the table and puts the ball back into Labour’s court.”
Ed Balls, the former shadow chancellor who co-presents the podcast, said: “We’ve been saying again and again they should do it. All Labour’s promises around more operations, scanners or dentistry or the stuff they’re saying around schools and breakfast clubs all relies on getting that money.
“If Jeremy Hunt were to take that money, it would make it much much harder. They would have to find some alternative source of revenue to pay for these promises.”
