The Labour party has vowed to abolish the “non-dom” tax loophole used by the chancellor Rishi Sunak’s wife to save paying up to £20m in UK tax.
Rachel Reeves, the shadow chancellor, said it “simply isn’t right that those at the top can benefit from outdated non-dom tax perks” while ordinary people struggle with tax rises and the cost of living crisis.
Reeves on Monday said Labour was sending “a clear message” to the global super-rich: “If you make your home in Britain you should pay tax here – on all of your income.”
Labour’s pledge follows the revelation that Sunak’s billionaire heiress wife, Akshata Murty, had been registered as a non-domiciled person for nine years and was paying an annual levy in order to shelter her foreign income from HMRC.
The status meant she could legally avoid UK tax on annual dividends worth millions, which she collected from her family’s IT business empire.
Following days of mounting public and political outrage, Murty announced this month she would begin paying tax on her worldwide income. However, she will not do so on backdated income. She also refused to give up her non-dom status, which could in future allow her family a legal means of avoiding an inheritance tax bill of more than £275m.
It also emerged that Sajid Javid, the health secretary, held non-dom status for six years while a banker, also allowing him to avoid tax on overseas earnings without breaking the law.
“With Labour, people who make the UK their home will contribute to this country by paying tax on their global income,” Reeves said.
“The prime minister and chancellor have spent the last few weeks preoccupied with saving their own skins, and have done nothing to tackle the spiralling cost of living. Even worse, they’ve made it harder for working people to make ends meet by hiking national insurance.”
Reeves promised that a Labour government would “tax fairly, spend wisely, and grow the economy”.
Proponents of non-dom status have warned that scrapping it could deter business owners from investing in the UK and creating jobs.
Reeves said Labour would replace the non-dom status – which was introduced under King George III in 1799 when Britain was fighting France – with a modern scheme for people who are “genuinely living in the UK for short periods to allow us to continue to attract top international talent”.
Labour said it would consult widely on how its new “temporary resident tax regime” would work but that any tax advantages would be likely to expire after five years, compared with up to 15 years under the current system.
The party said its plan would finally “put an end to the broken 200-year-old system that lets people dodge millions in tax, and bring our rules into line with those of systems similar to other major economies such as France, Germany and Canada”.
Scrapping the non-dom scheme could lead to a £1bn boost to the exchequer, Labour claimed citing research by the EU Tax Observatory.
The number of people who have ever claimed non-dom status in the UK rose from 162,000 in 2001 to 238,000 in 2018, according to a study by the London School of Economics and the University of Warwick.
This is not the first time Labour has promised tackle the controversial tax loophole, including while in government.
When Gordon Brown was chancellor, he used his 2002 budget to announce a review of non-dom rules following public outrage at the revelation that Hans Rausing, then the UK’s richest person, claimed non-dom status.
Brown declared that the country “must act swiftly to close tax loopholes and be vigilant against tax avoidance”.
However, it took a year to produce a “discussion document” that ruminated on possible changes but no action was taken.
Critics suggest that the very rich non-doms and their well-paid advisers lobbied hard for the tax scheme to be left in place, claiming that if scrapped the global super-rich would leave the UK and take their money with them.
During the period that potential changes were under discussion, steel billionaire Lakshmi Mittal – a non-dom – became the Labour party’s biggest donor. Mittal, who owns a £90m mansion on Kensington Palace Gardens next door to fellow non-dom Roman Abramovich, donated £125,000 in 2001 (before the review) but increased his donation to £2m in 2005 and gave a further £2m in 2007.
In 2015, then Labour leader Ed Miliband also promised to axe the “indefensible” non-dom tax scheme.
A spokesperson for Gordon Brown said: “Throughout the 13 years of the Labour government we were extremely concerned about the avoidance of tax by companies and individuals claiming domicile elsewhere or finding other ways to escape paying their full share of tax due and in every single budget there was a series of new measures to address abuse and avoidance … It was after 2010 that the coalition government eased up on tackling tax avoidance.”