Labour to close inheritance tax loophole for non-doms

Labour will close an inheritance tax loophole for non-doms and target tax-avoiders to pay for its spending commitments on schools and the NHS.

Rachel Reeves will make the announcement on Tuesday, with the money raised set to fill a funding hole created when the Tories copied their policies in the Budget.

The new source of funding was needed after Jeremy Hunt, the Chancellor, adopted Labour’s plans by banning non-domiciled tax status, which allows some foreigners in the UK to avoid paying tax.

Labour will go further and stop current non-doms from being able to move their money into an offshore trust before the ban comes into place in April 2025 and avoid paying inheritance tax.

The party would also remove a 50 per cent discount on the amount non-doms have to pay in tax in the first year of the new ban, a measure aimed at easing the impact of the change.

The policies are a tightening up of the non-dom ban announced by Mr Hunt last month. A Labour source said: “They’ve done the semi-skimmed version, we’re doing the full-flat version.”

The money raised will pay for commitments made on improving the health service and providing free primary school breakfasts for children.

A second money-raising drive will involve measures designed to help HMRC do a better job of getting tax payments that are owed but never made.

It includes hiring up to an extra 5,000 compliance officers, investing money to digitise the tax office and adopting a greater use of artificial intelligence at HMRC.

The non-dom inheritance tax raid is estimated to raise £430 million a year. Scrapping the 50 per cent discount raises £600 million, though that would be a one-off saving.

The savings for the tax avoidance crackdown are estimated by Labour to start at £700 million a year and rise within five years to £5 billion a year.

The focus on the so-called “tax gap” between what is owed and what is actually paid comes after Gareth Davies, the head of the National Audit Office, called for action to tackle the issue.

‘Take on the tax dodgers’

Ms Reeves, the Labour shadow chancellor, said: “At a time when working people in Britain are being asked to pay more in tax because of the Conservatives’ economic failures, it is wrong that a minority continue to avoid paying what they owe.

“After 14 years in power, the Conservatives have failed to tackle this issue and the tax gap remains unacceptable high. With Labour, things will change. We will take on the tax dodgers because if you make your home and do your business in Britain, then you should pay your taxes here too.

“The plan we are announcing today will give HMRC the resource it needs to go after those who are avoiding or evading tax, and to modernise the tax office so we have a system that is fit for purpose.”

But the Conservatives questioned whether so much money could be raised by targeting tax avoidance, noting Tory governments since 2010 have announced 200 measures with that focus.

Laura Trott, the Tory Chief Secretary to the Treasury, said: “After a month of searching for a plan to pay for Labour’s unfunded spending, the shadow chancellor still cannot say how she will fill the enormous black hole in their promises. And that means one thing – more taxes.

“The Labour Party hasn’t changed. They remain committed to unfunded spending, including their £28 billion a year decarbonisation promise, meaning they will have to raise taxes on working families – taking us back to square one.

“The Conservatives have introduced over 200 measures to clamp down on tax non-compliance and we are sticking to the plan to strengthen the economy so we can cut taxes, putting £900 in the pockets of the average worker and helping families to build a brighter future.”

The FDA, a trade union who represents civil servants, welcomed the announcement.

Lauren Crowley, its assistant general secretary, said: “We call on whoever forms the next government to implement our proposals in full to ensure HMRC has the resources necessary to maximise funds for the Treasury and Britain’s public services.”