Conservative plans to abolish non-dom status are riddled with loopholes worth hundreds of millions of pounds for the wealthiest people in the country, Labour has claimed.
Analysis by the party found that the policy, announced by Jeremy Hunt in this month’s budget, could theoretically see Rishi Sunak’s family benefit from tax savings of nearly £250m.
The findings will renew focus both on Sunak’s own wealth – his most recent tax return showed a personal income of £2.2m – and the non-dom status of his wife, Akshata Murty, who owns a £690m stake in Infosys, the IT multinational founded by her father.
In 2022, it emerged that Murty claimed non-domiciled tax status, which allows people to avoid paying UK tax on overseas earnings and had potentially saved her up to £20m. Murty subsequently declared that she would pay UK tax on overseas income, but did not give up her non-dom status.
Downing Street and the Treasury had previously condemned Labour’s plan to abolish non-dom status to help fund the NHS as harmful to the UK’s attractiveness to investors. But in a surprise turnaround, the chancellor announced that he would axe the status, a move viewed by many as mainly being motivated by a desire to limit new revenue sources for a future Labour government.
The Tories have sought to turn scrutiny of taxation on to Labour, capitalising on claims Angela Rayner, the party’s deputy leader, failed to pay capital gains tax on the sale of her former council house. The liability is estimated to be up to £3,500. Rayner says she is confident that she has done “absolutely nothing wrong”.
Under the scheme announced by Hunt, from next year people can avoid taxes only in the first four years of residency in the UK, compared with the previous 15-year threshold. However, Labour says a detailed examination of the plans show a series of ways in which people with existing non-dom status could limit their tax bills.
The most lucrative loophole is a provision that gives non-doms until April 2025 to put overseas funds in a trust, after which they are liable for UK income and capital gains taxes, but exempt from inheritance tax.
Murty holds a 1.05% stake in Infosys, which is valued at about £58bn. If she took advantage of the trust loophole, this could save the family nearly £250m, based on the current inheritance tax rate of 40%.
Andy Summers, associate professor of law at LSE and an expert on high-end tax policy, said it seemed likely that many non-doms would set up trusts, if they had not done so already. “Non-doms will already have most of their assets abroad rather than in the UK because of the incentives they have under the current regime,” he said.
“Putting these in a trust has costs in terms of just the lawyers’ fees and so on, but it doesn’t have any tax disadvantages under the new regime. So, you’d be kind of mad not to do it.”
Another tax expert, Arun Advani, associate professor of economics at Warwick University, said giving people a year to set up a trust was “ages in tax planning time”.
He queried why the trust loophole – if it was intended as an incentive for people to bring wealth into the UK – is time-limited until 2025: “If they think that to do otherwise would damage the economy because people won’t come here, then why is this only a problem for the next year?”
Another element of the new regime that could potentially benefit Sunak’s family is a provision to give a 50% tax discount on any overseas income and capital gains in the first year.
While Murty has said she will pay UK tax on such income, Labour has calculated that this could theoretically save her £3.75m, half the expected £7.5m expected income next year from dividends on her Infosys stake.
Further tax incentives in the plans unveiled by Hunt include a discounted rate of 12% for any income and capital gains brought to the UK before May 2027, and a clause basing the calculation of offshore capital gains on 2019 prices rather than current ones.
In response, No 10 officials argue that the UK has separate treaties on avoiding double inheritance tax with several countries, among them India – although the agreement with India dates to 1956, and India has since abolished its own inheritance tax.
James Murray, Labour’s shadow financial secretary to the Treasury, said: “Less than a month ago, Jeremy Hunt claimed he was poaching Labour’s policy to abolish the non-dom tax status.
“Since then, we have been going through the government’s plans line by line and buried in the small print are loopholes worth hundreds of millions of pounds for the wealthiest people in the country. Even the prime minister’s family could benefit from government policy.
“This revelation raises very serious questions about the credibility of the government’s tax policies and what’s driving them. It looks like, once again, it’s one rule for them and another for everyone else.”
A Treasury spokesperson said: “We do not comment on the tax affairs of individuals. As set out in spring budget 2024, the government will abolish the current tax system for non-doms and replace it with a modern, simpler and fairer residency-based system using the revenue to cut taxes on working people.”
