James Austen, partner at Collyer Bristow has given his thoughts on the talk of an apparent U-turn by the Government on non-doms, as reported by Investment International on 27 September quoting a Guardian exclusive story which said Treasury officials had number crunched to find that the planned tax crackdown would not raise any money.
Austen said "If the reports on the apparent “U-turn” in the Government’s approach to the taxation of Non-Doms are accurate, the Chancellor and her Treasury officials are finally taking seriously what tax lawyers have been saying for months: a punitive tax policy on wealthy internationally-mobile residents – and those who might otherwise move to the UK – will be self-defeating in its effect on the Exchequer. Realisation may finally be dawning that we weren’t making it up.
"It seems that the Government is now moving towards the tax strategy proposed by the Conservative Party in the dying months of the last Government, and shorn of the additional changes proposed in Labour’s Manifesto – including scrapping the plan to change the IHT treatment of widely-used ‘excluded property trusts. We said at the time that Labour’s original proposals were fraught with technical difficulties, aside from the uncertainty about their effectiveness in generating additional tax revenue: it may be that the Treasury mandarins are privately recognising the truth of that now, too. Nevertheless, the details are presently few and vague, and affected taxpayers must remain in limbo for a while longer yet.
He continued: "Regrettably, even if a welcome U-turn on Non-Dom tax does come, it will be too late to prevent the damage that has already been done to the UK’s reputation as a jurisdiction of choice for wealthy international people to make their homes and businesses.
"As tax lawyers have been saying throughout the recent political attention on Non-Doms, many such clients have already left the UK or are taking steps to leave before 6 April 2025: it seems unlikely that they will be persuaded to stay by a late change of heart now. Worse, those who might otherwise have been attracted to the UK will be wary of further changes to the Government’s plans in the future: legal and tax stability are of paramount importance in attracting inward investment, whilst uncertainty (on which the UK already had a poor track record) is one of the biggest “push” factors making a country unattractive.
"At best, the Government must hope its late realisation that a punitive tax policy harms the UK economy (and reduces the Government’s tax-take) will prevent further immediate damage to the UK’s international reputation. But to repair the reputational damage and generate additional taxation to fund the Government’s domestic policy objectives, a lengthy period over which positive steps are taken to attract potential taxpayers will be necessary.
"Helpfully, there are good examples of effective tax and immigration policies in other G7 countries (e.g., the USA and Italy) which the UK could adapt and implement to meet its own need – provided that the Government has the political will to implement such a programme. It remains to be seen whether or not it does.
He concluded: The Government must decide whether it is serious about generating additional tax revenue by growing the UK economy – including by attracting wealthy taxpayers here – or whether instead it wants to pursue a self-defeating agenda by which it makes the UK unattractive to current and potential investors who can choose to go elsewhere: it cannot do both. We will be watching developments with interest.
