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Rachel Reeves plans to revise the finance bill to ease proposed adjustments to the non-domicile (non-dom) tax system, as the Labour Party seeks to attract affluent individuals to stimulate economic growth.
During her participation at the World Economic Forum in Davos, Switzerland, Reeves engaged with prominent business figures and expressed: “We have been mindful of the concerns presented by the non-dom community.”
The anticipated modification appears to be modest, involving an adjustment to the transitional rules aimed at helping affluent taxpayers adapt to the forthcoming elimination of non-dom status.
This initiative is part of a broader strategy by Labour to promote the UK as a favorable investment climate. Recently, the party has made headlines by reshuffling leadership within the competition regulator, Marcus Bokkerink, imposing new restrictions on legal challenges for major infrastructure projects, and pledging to reassess the visa regulations for high-skilled professionals.
The Treasury has also engaged with a Supreme Court case addressing car financing after banks raised concerns regarding potentially significant compensation payouts to consumers.
Business Secretary Jonathan Reynolds, who accompanied Reeves to Davos in promoting the UK’s business landscape, noted: “We have a compelling message to share. We’re reaching out to investors who recognize our stability compared to other European nations and our advocacy for openness.”
Under the present non-dom guidelines, individuals claiming this status—often wealthy residents with foreign roots—can avoid UK taxation on overseas income for up to 15 years in exchange for annual fees. Reeves is set to replace this with a more concise, residence-based system starting April.
The proposed changes focus on the temporary repatriation scheme, a transitional framework commencing in April 2025, which allows non-doms to move overseas income to the UK and benefit from a reduced tax rate of 12-15%. Initially announced by Conservative Chancellor Jeremy Hunt, Reeves has now extended this period from two years to three.
Despite the extension, some affluent individuals have raised issues with the stringent rules surrounding the facility, which excluded certain types of investment returns. The Treasury has indicated plans to adjust these stipulations.
Shadow Chancellor Mel Stride criticized the adjustments, arguing that they undermine Kyoto’s business understanding, asserting, “Labour simply does not grasp the essentials of the economy, and it’s the working population that bears the consequences.”
Treasury officials contended that these modifications were not prompted by claims of wealthy individuals leaving the UK. Reynolds confirmed the change, stating: “A tweak to the finance bill is in progress… Naturally, when altering tax structures, there’s a level of uncertainty, so we must communicate effectively.”
Throughout events at Davos, both he and Reeves have promoted the narrative that the UK is receptive to investment, with the Chancellor asserting that fostering economic growth is of paramount importance, even above the government’s net-zero commitment.
Hunt had previously announced the intention to abolish the longstanding non-dom tax regime, a byproduct of Britain’s colonial history, during last spring’s budget. Labour committed to surpassing Hunt’s reform, leading to Reeves announcing a registration-based framework in her budget unveiled on October 30.
The existing system allows wealthy individuals to shield their overseas earnings from UK taxation, with certain strategies in place to maintain inheritance tax privileges post the 15-year period. Reeves’s actions to tighten these loopholes have been identified by some non-doms as a primary reason for their departure from the UK.
A spokesperson from the Treasury stated: “While we do not foresee these adjustments affecting the anticipated £33.8 billion in tax revenue projected by the Office for Budget Responsibility over the next five years, they indicate our ongoing discussions with stakeholders to ensure the proposed reforms function as intended.”
“The temporary repatriation facility aims to incentivize non-doms to relocate their resources to the UK, thus encouraging local spending and investment.”
Reeves, Reynolds, and Trade Minister Sarah Jones met with over 20 executives from major corporations, including Lloyds Banking Group, HSBC, and Barclays, at a lunch organized by the Confederation of British Industry and KPMG in Davos.
Attendees reflected positively on Reeves’s approach, stating that she recognized the need for a more optimistic messaging strategy and that growth must be framed as the focal point of discussions. There was a collective sentiment that the government is committed to maintaining momentum and reshaping the narrative following recent budget challenges, indicating a significant shift in outreach efforts.
Another participant described the dialogue as “friendly, warm, and respectful,” remarking that inquiries were mild in nature, suggesting a shared appreciation for the UK’s efforts at the event.
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