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Jeremy Hunt’s move is blatantly political but there are good arguments for reform

It is a century since the curious concept of domicile was embedded in the UK tax code. Chancellors stretching back to Nigel Lawson in 1988 have considered overhauling this relic of empire.

So Jeremy Hunt’s move to scrap domicile-based reliefs, benefiting those whose permanent home is abroad, is genuinely radical. It risks making the UK less attractive to wealthy foreigners. But this is an opportunity to create a cheaper, better-targeted relief.

Hunt’s move is blatantly political. Still, there are good arguments for reform. Firstly, domicile is a concept — that transcends nationality, residence and ethnicity — which few people understand. Secondly, the mechanics of the non-dom system have perverse implications. It relies on the remittance basis, a concept dating back to the introduction of income tax in 1799, to keep foreign income and gains out of the tax net unless they are brought into the UK. 

One awkward consequence is that qualifying as a non-dom requires people to keep a connection with another country. That makes their eventual departure from Britain more likely. Another perverse aspect is that it encourages rich individuals to set up home in Britain but leave their wealth outside it. A business investment relief introduced in 2012 is not much used.

Hunt’s reforms are an improvement in this regard. New arrivals will be exempt for four years from paying UK tax on foreign income and gains — including those remitted to the UK. There is also an incentive for current non-doms who are ineligible for the new regime to bring assets onshore. 

Keeping some form of tax concession for newcomers makes sense, not least because other countries such as Italy, the Netherlands and Spain have similar incentives. But the regime outlined by Hunt is a lot less generous than the scheme it replaces. An estimated 5,500 people are set to pay UK tax on their foreign income and gains from 2025.

Transition arrangements ease the pain. And the chancellor is likely to have drawn reassurance from research showing a minor impact from 2017 reforms that increased taxes for those who had been in the UK for more than 15 years. But some backlash is inevitable: there is a risk that the reforms drive away a greater number of high earners than expected.

A lot of guesswork is involved here. The Office for Budget Responsibility reckons that between 10 per cent and 20 per cent of current non-doms who are ineligible for the new regime will leave the UK. There is a high degree of uncertainty about whether the initiative will raise the mooted £2.7bn a year.

There is also a risk of alienating workers, investors and entrepreneurs that the UK wants to attract and keep. The City of London may be wary. More than one in five high-earning bankers — those in the top 1 per cent of earners nationally — have benefited from non-dom status at some point, according to research by the LSE and University of Warwick.

Change was coming anyway. The Labour party, which has a huge poll lead, had pledged to introduce a less generous system. It would be good if some cross-party consensus could be achieved on the reforms. After years of political turmoil, attracting the best and brightest also requires the UK to regain its reputation for stability.

UK chancellor says the move would encourage the wealthy to sell, so boosting state coffers and freeing housing supply

Higher-rate taxpayers selling residential property in the UK will pay less capital gains tax, the chancellor announced in the Budget on Wednesday, arguing the measure would increase tax revenue. 

Jeremy Hunt said the tax paid on capital gains from such transactions would fall from 28 per cent to 24 per cent for higher-rate taxpayers from April after government studies showed the change would raise revenue by encouraging more people to sell. 

Homeowners in the UK generally do not pay capital gains on their main residence, so the changes will mainly affect private landlords and second homeowners. 

The change came alongside two other changes that are likely to cost those groups more — abolishing tax relief for some holiday lets in 2025 and ending the multiple dwelling relief from stamp duty land transaction tax this year. The Treasury said the three measures would raise an additional £605mn in 2025-26. 

Lucian Cook, head of residential research at estate agent Savills, said the measures appeared tailored to “‘raise more revenue, as much as to address the housing crisis”. 

“The biggest implications are going to be for private investors and, to a lesser extent, second homeowners,” he added.

The Treasury said the capital gains changes would “encourage landlords and second homeowners to sell their properties, making more available for a variety of buyers, including those looking to get on the housing ladder”. 

Against a backdrop of consistent underdelivering of new housing supply, the government is looking to use the tax system to push for existing homes to be used more efficiently. 

Some analysts had argued for a change to stamp duty to encourage downsizing by homeowners who have more space than they need. The impact of the capital gains tax changes will be limited because they do not apply to main residences. 

Hunt also abolished the furnished holiday lets regime, which gives tax breaks to holiday rental businesses. The chancellor said the scheme, which is more favourable than the tax paid by long-term landlords, created “distortion” by encouraging people to turn rental homes into holiday lets.

A 2022 report from the Office of Tax Simplification found that the rules benefit a “relatively small core of people running a substantial short-term letting business, and a long tail of second-home owners renting one property”.  

Michael Gove, levelling up secretary, last month pushed ahead with other policy changes to crack down on holiday lets, which he blames for hoovering up housing supply in tourist areas. He said the government plans to force second-home owners to seek planning permission to create new short-term lets, and create a mandatory national register of short-term rental properties.

Hunt said the changes announced in the Budget would “make the tax system work better for local people”. 

Tax relief for buyers of multiple homes in one transaction will also be scrapped. Hunt said rules that allow purchasers of multiple dwellings to pay less stamp duty were designed to encourage investment in the private rental sector. But he said there was “no strong evidence” that it does so, and that the relief was “regularly abused”. 

The British Property Federation said the change could hit investors wanting to buy badly needed rental homes. 

Overall, the Budget disappointed hopes of a big move to help boost the property market, help first-time buyers get on the housing ladder or increase housing supply. 

Graham Prothero, chief executive of housebuilder MJ Gleeson, said: “We didn’t expect a lot, and we got a bit less.”