What do we do about the non-doms? 

It’s a question more than a handful of people have been asking themselves at the Treasury lately.

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It had seemed simple enough. In her first budget as chancellor, Rachel Reeves promised a crackdown on the non-dom regime, which for the past 200 years has allowed residents to declare they are permanently domiciled in another country for tax purposes.

Under the scheme, non-doms, some of the richest people in the country, were not taxed on their foreign incomes.

Then that all changed.

Standing at the despatch box in October last year, the chancellor said: “I have always said that if you make Britain your home, you should pay your tax here. So today, I can confirm we will abolish the non-dom tax regime and remove the outdated concept of domicile from the tax system from April 2025.”

The hope was that the move would raise £3.8bn for the public purse. However, there are signs that the non-doms are leaving in such great numbers that the policy could end up costing the UK investment, jobs and, of course, the tax that the non-doms already pay on their UK earnings.

If the numbers don’t add up, this tax-raising policy could morph into an act of self-harm.

With the budget already under strain, a poor calculation would be costly financially. The alternative, a U-turn, could be expensive for other reasons, eroding faith in a chancellor who has already been on a turbulent ride.

So, how worried should she be?

The data on the number of non-doms in the country is published with a considerable lag. So, it will be a while before we know the full impact of this policy.

However, there is much uncertainty about how this group will behave.

While the Office for Budget Responsibility forecast that the policy could generate £3.8bn for the government over the next five years, assuming between 12 and 25% of them leave, it admitted it lacked confidence in those numbers.

Worryingly for ministers, there are signs, especially in London, that the exodus could be greater.

Property sales

Analysis from the property company LonRes, shows there were 35.8% fewer transactions in May for properties in London’s most exclusive postcodes compared with a year earlier and 33.5% fewer than the pre-pandemic average.

Estate agents blame falling demand from non-dom buyers.

This comes as no surprise to Magda Wierzycka, a South African billionaire businesswoman, who runs an investment fund in London. She herself is threatening to leave the UK unless the government waters down its plans.

“Non-doms are leaving, as we speak, and the problem with numbers is that the consequences will only become known in the next 12 to 18 months,” she said.

“But I have absolutely no doubt, based on people I know who have already left, that the consequences would be quite significant.

“It’s not just about the people who are leaving that everyone is focusing on. It’s also about the people who are not coming, people who would have come, set up businesses, created jobs, they’re not coming. They take one look at what has happened here, and they’re not coming.”

Lack of options for non-doms

But where will they go? Britain was unusual in offering such an attractive regime. Bar a few notable exceptions, such as Italy, most countries run residency-based tax systems, meaning people pay tax to the country in which they live.

This approach meant many non-doms escaped paying tax on their foreign income altogether because they didn’t live in those countries where they earned their foreign income.

In any case, widespread double taxation treaties mean people are generally not taxed twice, although they may have to pay the difference.

In one important sense, Magda is right. It could take a while before the consequences are fully known. There are few firm data points for us to draw conclusions from right now, but the past could be illustrative.

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The non-dom regime has been through repeated reform. George Osborne changed the system back in 2017 to limit it to just 15 years. Then Jeremy Hunt announced the Tories would abolish the regime altogether in one of his final budgets.

Following the 2017 reforms there was an initial shock, but the numbers stabilised, falling just 5% after a few years. The data suggests there was an initial exodus of people who were probably considering leaving anyway, but those who remained – and then arrived – were intent on staying in the UK.

So, should the government look through the numbers and hold its nerve? Not necessarily.

Have Labour crossed a red line?

Stuart Adam, a senior economist at the Institute for Fiscal Studies, said the response could be far greater this time because of some key changes under Labour.

The government will no longer allow non-doms to protect money held in trusts, so 40% inheritance tax will be due on their estates. For many, that is a red line.

Mr Adam said: “The 2017 reform deliberately built in what you might call a loophole, a way to avoid paying a lot more tax through the use of existing offshore trusts. That was a route deliberately left open to enable many people to avoid the tax.

“So it’s not then surprising that they didn’t up sticks and leave. Part of the reform that was announced last year was actually not having that kind of gap in the system to enable people to avoid the tax using trusts, and therefore you might expect to see a bigger response to the kind of reforms we’ve seen announced now, but it also means we don’t have very much idea about how big a response to expect.”

With the public finances under considerable pressure, that will offer little comfort to a chancellor who is operating on the finest of margins.

Homelessness minister Rushanara Ali has resigned after reportedly hiking the rent on a property she owns by hundreds of pounds – something described by one of her tenants as “extortion”.

That was just weeks after the previous tenants’ contract ended, The i Paper said.

Four tenants who rented a house in east London from Ms Ali were sent an email last November saying their lease would not be renewed, and which also gave them four months’ notice to leave, the newspaper reported.

The property was then re-listed with a £700 rent increase within weeks, the publication added.

In a letter to the prime minister, Ms Ali said that remaining in her role would be a “distraction from the ambitious work of this government”.

She added: “Further to recent reporting, I wanted to make it clear that at all times I have followed all relevant legal requirements.

“I believe I took my responsibilities and duties seriously, and the facts demonstrate this.”

Laura Jackson, one of Ms Ali’s former tenants, said she and three others collectively paid £3,300 in rent.

Weeks after she and her fellow tenants had left, the self-employed restaurant owner said she saw the house re-listed with a rent of around £4,000.

“It’s an absolute joke,” she said. “Trying to get that much money from renters is extortion.”

Ms Ali’s house, rented on a fixed-term contract, was put up for sale while the tenants were living there, and was only relisted as a rental because it had not sold, according to The i Paper.

The government’s Renters’ Rights Bill includes measures to ban landlords who end a tenancy to sell a property from re-listing it for six months.

The Bill, which is nearing its end stages of scrutiny in Parliament, will also abolish fixed-term tenancies and ensure landlords give four months’ notice if they want to sell their property.

Something Sir Keir’s increasingly unpopular government could have done without

Jon Craig

Chief political correspondent

@joncraig

Rushanara Ali’s swift and humiliating demise is a classic example of paying the price for the politician’s crime of “Do as I say, not as I do”.

She was Labour’s minister for homelessness, for goodness’ sake, yet she ejected tenants from her near-£1m town house then hiked the rent.

A more egregious case of ministerial double standards it would be difficult to imagine. She had to go and was no doubt told by 10 Downing Street to go quickly.

MP for the East End constituency of Bethnal Green and Stepney, Ms Ali was the very model of a modern Labour minister: a degree in PPE from Oxford University.

In her resignation letter to Sir Keir Starmer, she said she is quitting “with a heavy heart”. Really? She presumably didn’t have a heavy heart when she ejected her four tenants.

She’d previously spoken out against “private renters being exploited” and said the government would “empower people to challenge unreasonable rent increases”.

She was charging her four former tenants £3,300 a month. Yet after they moved out, she charged her new tenants £4,000, a rent increase of more than 20%.

In an area represented by the left-wing firebrand George Galloway from 2005 to 2010, Ms Ali had a majority of under 1,700 at the election last year.

Ominously for Labour, an independent candidate was second and the Greens third. No doubt Jeremy Corbyn’s new party will also stand next time.

In her resignation letter to the PM, Ms Ali said continuing in her ministerial role would be a distraction. Too right.

A distraction Sir Keir and his increasingly unpopular government could have done without.

Responding to her resignation, shadow housing secretary Sir James Cleverly said: “I said that her actions were total hypocrisy and that she should go if the accusations were shown to be true.”

A Liberal Democrat spokesperson said: “Rushanara Ali fundamentally misunderstood her role. Her job was to tackle homelessness, not to increase it.”

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Previously, a spokesperson for Ms Ali said the tenants “stayed for the entirety of their fixed term contract, and were informed they could stay beyond the expiration of the fixed term, while the property remained on the market, but this was not taken up, and they decided to leave the property”.

The prime minister thanked Ms Ali for her “diligent work” and for helping to “deliver this government’s ambitious agenda”.

Sir Keir Starmer said her work in putting in measures to repeal the Vagrancy Act would have a “significant impact”.

And he said she had been trying to encourage “more people to engage and participate in our democracy”, something that would leave a “lasting legacy”.

Rushanara Ali’s swift and humiliating demise is a classic example of paying the price for the politician’s crime of “do as I say, not as I do”.

She was Labour’s minister for homelessness, for goodness’ sake, yet she ejected tenants from her near-£1m town house and then hiked the rent.

Politics Hub: Minister’s resignation as it happened

A more egregious case of ministerial double standards it would be difficult to imagine. She had to go and was no doubt told by 10 Downing Street to go quickly.

‘A heavy heart’ – really?

MP for the East End constituency of Bethnal Green and Stepney, Ms Ali was the very model of a modern Labour minister: A degree in PPE from Oxford University.

In her resignation letter to Sir Keir Starmer, she said she is quitting “with a heavy heart”. Really? She presumably didn’t have a heavy heart when she ejected her four tenants.

She’d previously spoken out against “private renters being exploited” and said her government would “empower people to challenge unreasonable rent increases”.

The now former minister was charging her four former tenants £3,300 a month. Yet after they moved out, she charged her new tenants £4,000 – a rent increase of more than 20%.

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A fragile constituency for Labour?

In an area represented by the left-wing firebrand George Galloway from 2005 to 2010, Ms Ali had a majority of under 1,700 at the election last year.

Ominously for Labour, an independent candidate was second and the Greens third. No doubt Jeremy Corbyn’s new party will also stand next time.

In her resignation letter to the PM, Ms Ali said continuing in her ministerial role would be a distraction. Too right.

A distraction Sir Keir and his increasingly unpopular government could have done without.