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Non-doms say they're leaving: will Labour remove the Tourist Tax to soften the blow?

Marcus Jaye
29 May 2024

With the General Election announced and a Labour landslide predicted, it is pertinent to surmise what will and won’t be kept by a fresh, incoming government. One thing almost for certain is the high tax environment introduced by the most unconservative of Conservative parties won’t be going anywhere, anytime soon. The Labour Party has already announced that VAT will be added onto private school fees immediately.

Current Chancellor, Jeremy Hunt surprised the UK’s billionaires by stealing Labour’s policy and abolishing non-dom status in April 2024’s Budget. It removes the status allowing them not to pay income tax or capital gains tax on their overseas earnings. It was originally introduced under King George III in 1799 to allow subjects who lived part of the time in far-flung colonies to avoid paying tax in the UK.

From April 2025 this is changing, and many of the brands, retailers and businesses that service UHNWIs (Ultra High Net Worth Individuals) are worried. It would affect about 70,000 people who currently do not pay income tax or capital gains tax on their overseas earnings. Under Hunt’s new rules, people moving to the UK will only be exempt from tax on foreign earnings for the first four years they are resident. The changes are forecast to generate £2.7 billion ($3.4 billion) a year for the government by 2029.

The current non-dom status means they can choose not to pay taxes on income and capital gains earned abroad for up to 15 years after arriving in Britain as long as they don’t transfer any of that money into the country.

Many non-doms, who threw money at the Conservative Party, probably thought they could get some concessions, but a Labour win would cement the policy. Labour has also promised to go further and previously announced plans to close ‘loopholes’ in Hunt’s plan, including one that allowed those who will lose the tax-free status to still avoid paying inheritance tax on foreign assets held in offshore trusts.

A Labour spokesperson said they did not believe the policy would lead to an exodus of non-doms. “We do not accept this argument,” they said. “Before the Conservatives stole Labour’s non-dom policy, they were making the exact same argument only to conveniently drop their warning sound when they adopted the policy.”

Non-doms with children have been reported to be making plans to fit in with new school calendars. Billionaire Bassim Haidar told The Guardian he had formed a working group of 29 non-doms, who mostly planned to leave the UK before September so that they could secure places for their children in private schools in their new countries before the start of the academic year. Adding VAT onto UK private school fees will simply be another incentive to leave and confirm they were right to. This could be a major blow to top-end retail and hospitality which is already said to suffering from the ‘Tourist Tax’.

The 'Tourist Tax’, so named when, then chancellor, Rishi Sunak abolished tax-free shopping for tourists in 2020, has been cited by many brands and retailers as the reason for lacklustre sales in the UK. Luxury brands and retailers have made continued calls on the government to scrap this policy, citing increases in sales in foreign cities like Madrid and Paris as evidence that London is suffering and falling behind.

Tax free shopping

Heathrow has been hit by the removal of tax-free shopping (Thomas Eversley / Alamy)

Sales have been difficult at Heathrow Airport despite the huge rise in travellers. Heathrow said: "While exports are thriving, Britain has shut the door on home-grown growth, turning away international shoppers through the tourist tax and tarnishing the UK's reputation as a competitive country to spend and do business with."

The airport also criticised measures such as introducing a £10 fee for some passengers.
The electronic travel authorisation (ETA) scheme was introduced last year for those entering or travelling through the UK without legal residence or a visa. Nationals of Qatar, Bahrain, Kuwait, Oman, the United Arab Emirates, Saudi Arabia and Jordan must pay the fee. It extends to the rest of the world this autumn and Europeans next year.

Sunak has remained stubborn and resolute in sticking to his tax-free shopping reorganisation.

Keir Starmer will want to look at the books, making sure they balance and that he can pay for any forthcoming manifesto promises. He doesn’t seem the type to rush into anything.

Labour could be swayed by the potential job growth opportunities and the huge boost it would give to tourism and the wider economy. It would be a rocket for the whole country considering tax-free shopping would now be open to EU residents, when previously it wasn’t, pre-Brexit.

Labour has been painting itself as the party for business and scrapping the ‘Tourist Tax’ is an easy win for them and UK plc. It would make the loss of non-dom status a lot more palatable and less significant for luxury brands doing business in the UK.

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