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UK chancellor Rachel Reeves is ready to water down her planned Budget raid on non-doms amid Treasury fears that some of the measures may fail to raise any money, according to people familiar with the matter.
Reeves had hoped to raise £1bn a year by toughening a plan by former Conservative chancellor Jeremy Hunt to end the tax perk for UK residents whose permanent home is overseas, also known as non-doms.
But government officials said on Thursday that Reeves would overhaul the plan if the numbers did not add up, while stressing that no final decisions had been taken.
It comes amid warnings by tax advisers that thousands of wealthy UK residents were looking to leave the country.
“We are looking at the details of our proposals. We will be pragmatic, not ideological,” said one official. “We won’t press on regardless, but we are not going to abandon this completely.”
Treasury officials fear that parts of the crackdown may fail to bring in extra revenues, as current beneficiaries of the regime look to more favourable tax jurisdictions.
Labour had planned to scrap concessions planned by the previous Tory government, including protection from inheritance tax for trusts and a 50 per cent tax discount for non-doms bringing in foreign income in 2025-26.
Reeves is said by colleagues to remain determined to end non-dom status, a policy originally advocated by Labour and announced by Hunt in his March 2024 Budget. That policy is expected to raise £2.7bn by 2028.
Government insiders say that Reeves is still determined to go beyond the Hunt plan but is looking at the details, including on inheritance tax.
The Treasury described this as “speculation” and said the independent Office for Budget Responsibility would certify the costings of all measures announced at the Budget.
It said it would remove unfairness in the tax system and remove “the outdated non-dom tax regime and replace it with a new, internationally competitive residence-based regime”.
Labour’s non-dom policy was a manifesto pledge aimed at raising money to fund more hospital and dental appointments and school breakfast clubs.
Reeves has vowed to stick to a self-imposed rule that public debt as a percentage of GDP would be falling in five years’ time, meaning she is constrained by OBR forecasts about the effects of her tax-and-spend policies.
Hunt told the Financial Times: “It will be no surprise if Labour’s policy raises no money, because, as always, they fail to understand the importance of globally competitive tax rates to our economy.”