The Conservative plan to abolish non-domiciled status comes under scrutiny as Labour reveals potential tax savings for the wealthiest, including the Prime Minister’s family

The Conservative Party’s recent proposal to abolish the non-domiciled tax status has been criticized by the Labour Party for containing significant loopholes that could allow the UK’s wealthiest individuals, including the family of Prime Minister Rishi Sunak, to save millions in taxes. This announcement, part of Chancellor Jeremy Hunt’s budget, was initially seen as a move to address tax fairness but is now under intense scrutiny for its potential benefits to the affluent, amidst ongoing debates about tax policies and economic inequality.

Labour’s analysis suggests that under the new tax reforms, Sunak’s family could theoretically benefit from nearly £250 million in tax savings. This focus on Sunak’s wealth and his wife Akshata Murty’s non-dom status—which previously enabled her to avoid UK taxes on overseas income—has reignited discussions about the fairness of the UK’s tax system.

Murty, who owns a significant stake in the IT giant Infosys, had been under fire in 2022 for her non-domiciled status, which potentially saved her up to £20 million in UK taxes. Although she later agreed to pay UK tax on her global income, the controversy highlighted the advantages of non-dom status, which allows some UK residents to limit taxes on income earned outside the country.

The Conservative government’s turnabout on non-dom status, previously defended as vital for attracting investors to the UK, now aims to set a new, stricter residency-based tax system. However, Labour’s scrutiny reveals that the planned overhaul could leave considerable room for tax avoidance, particularly through the creation of trusts for overseas assets before April 2025, thereby exempting them from UK inheritance tax.

Experts like Andy Summers from the London School of Economics and Arun Advani from Warwick University have pointed out the potential for widespread use of these trusts by non-domiciled individuals to shield their assets from taxes. This, along with other incentives such as a 50% tax discount on overseas income and capital gains in the first year and a discounted rate of 12% before May 2027, raises questions about the reforms’ effectiveness in ensuring tax equity.

These revelations come at a time when the UK faces high inflation and debates over affordability and the cost of living, with the Labour Party accusing the government of creating tax policies that benefit the wealthiest while leaving ordinary citizens behind. James Murray, Labour’s shadow financial secretary to the Treasury, criticized the government for embedding loopholes in the tax reform plans, suggesting that it exemplifies a broader issue of inequity in government policy.

The Treasury has responded by stating it does not comment on individual tax affairs and emphasizes the reform’s aim to establish a modern and fair tax system. However, as Labour continues to unravel the details of the proposed changes, the debate over tax fairness and the role of non-dom status in the UK’s tax system is likely to intensify, particularly with the Treasury’s budget decisions and the upcoming general elections in mind.