Finance Bill completes Commons passage following non-dom changes

The Finance Bill can now be considered final. It is expected to be debated in the House of Lords on 19 March and receive Royal Assent within the following few days. While the Lords can discuss the bill, they cannot amend it. 

Here is a summary of the debate, contributions being grouped broadly by topic:

Report stage

Non-doms

The Exchequer Secretary, James Murray, emphasised that the Bill removes the ‘outdated’ domicile status from the tax system, replacing it with a residence-based regime from 6 April 2025, raising £12.7 billion over the forecast period. This internationally competitive system aims to ‘attract’ top talent and investment in the UK, he claimed.

The government tabled 57 amendments to this part of the bill. These were described by the minister as “minor technical changes and administrative easements that will ensure that the regime works as intended”. (CIOT provided MPs with a briefing / representation on them, available here.)

The minister said for the new four-year foreign income and gains regime, the amendments would ensure that any claims by individuals for relief on foreign income and gains are properly accounted for with regard to access to other forms of tax relief. On amendments to clause 40 and schedule 9, he reported that they correct references to domicile found in other legislation, refine remittance rules relating to intangible assets and ensure individuals using previously remitted funds after returning to the UK are not taxed.

Regarding the temporary repatriation facility, Murray said that the amendments address concerns raised by non-doms and experts, increasing trust distributions and improving usability. He then discussed 11 technical amendments which refine the new residence-based inheritance tax system, addressing mismatches with deemed domicile rules and double taxation agreements. 

The Shadow Exchequer Secretary, James Wild (Con), claimed the government’s proposals had already caused “a significant exodus of investors from the UK”. The Chancellor had said at Davos that she would amend the proposals to make them more attractive but, he argued, “the damage has already been done”. He cited the Chartered Institute of Taxation (CIOT) which has warned that, “given the lack of proper consideration and consultation, the amended proposals still leave uncertainty, which will be counterproductive if it is the government’s intention to encourage those people to stay and to allay the concerns of those looking to invest in the UK”.

Likewise, the Liberal Democrat Treasury spokesperson Daisy Cooper highlighted the “comprehensive briefing” that CIOT had provided to MPs, commenting: “It is fair to say that the government’s proposals on non-doms have been a little hodgepodge”. She emphasised the Institute’s call for a proper consultation, its warns that “uncertainty” has been introduced through these measures and comments “that the drafting of some amendments may inadvertently achieve the opposite of what the Government seek”.  She encouraged the minister to meet with the CIOT and “heed its warnings to ensure that measures are properly drafted and that no uncertainty is introduced through them”.

Graham Stuart (Con) also criticised the government’s approach, blaming them for driving out the very rich, who bring a “massively disproportionate” amount of revenue. On the contrary, Nesil Caliskan (Lab) praised the government’s proposals, suggesting that they deliver a ‘fair’ approach to taxation in the country.

Vote: All 57 government’s amendments in this group were passed, without any divisions.

Other government amendments

The government also proposed four amendments in relation to audio/visual expenditure credits. These seek to clarify and correct the calculation of the relief.

During the debate, the minister said he hoped that he had the ‘consent’ of the whole house for these amendments.

Vote: The four amendments were passed without a division

VAT on private school fees

The Conservatives tabled amendments 67 to 69, which requested removal of clauses 47 to 49 from the Bill. If passed these would have reversed the imposition of VAT on school fees.

Introducing these amendments, the Shadow Exchequer Secretary expressed concern about the impact of this measure on certain groups, including children with special educational needs, small schools, faith schools and military families. He argued that the policy would make the fees unaffordable for the parents of many and add pressures to the state system.

Daisy Cooper echoed this message and added that, “if children’s education is disrupted, they immediately suffer disadvantages in their life”. She wished the government had at least allowed a few years for adjustment.

Cooper tabled new clause 7 which would have required the government to produce an impact assessment of the effect of VAT on pupils who have special educational needs but do not have an Education Health and Care Plan. Proposing it she argued that the consequences of the bill include a “steep rise” in demand for local authorities to issue such plans and a rapid influx of pupils into the state system. Local authority resources for special educational needs and disabilities are already stretched to “breaking point”, and many state schools will struggle to cope with the additional demand, she predicted. 

Graham Stuart agreed with Cooper and suggested that these children will be forced out of their schools with no notice and no time to change and plan. Jim Shannon (DUP) believed that the measure has the potential to push parents into debt, urging the government to leave small and faith schools out of this policy.

Paul Kohler (Lib Dem) said that education should not be taxed and individuals should be able to freely make choices about how their children are educated. “[T]hese ideologically driven policies of taxing education are not the solution,” he argued. 

Dave Doogan (SNP) supported the government’s move, but raised the Scottish government’s concerns about the decision to include grant-aided special schools in the policy, saying that, in Scottish law, they are not considered independent schools. 

The Exchequer Secretary confirmed that grant-aided special schools in Scotland will remain in scope of this policy, but explained that the Scottish Government’s block grants to such schools will fall outside, and local authorities will be able to reclaim the VAT that they pay for individual pupils.  He continued that the change will raise £1.7 billion by the final year of this Parliament, emphasising that, in developing the policy, the government carefully considered the impact it would have, including on pupils with special educational needs and disabilities.

Vote: Amendment 67 was rejected by 167 – 347. Following this the other two amendments were not moved.

Energy profits levy 

The Conservatives tabled new clause 2, which sought an impact assessment of the increase in rates of the levy.

Introducing the new clause, James Wild cited Offshore Energies UK that has said that the proposed hike “will choke off billions of pounds of investment in the North Sea”, putting 35,000 jobs at risk. He continued that the energy sector offers 200,000 high-skilled jobs, therefore it is ‘important’ to have an up-to-date assessment of the impact. Likewise, Harriet Cross (Con) suggested that the energy profits levy is expected to cause huge amounts of ‘instability’ for North Sea firms and “driving away investment”.

Labour MPs Jim Dickson and Nesil Caliskan did not support the new clause, with Caliskan considering the government’s approach a “right one”. On the other hand, Jim Shannon expressed the DUP’s support for the new clause.

The Lib Dems proposed new clause 6 which would have required the government to produce a report setting out the impact of the bill’s changes to investment expenditure relief. Proposing it, Daisy Cooper explained that the Lib Dems were the first to call for a windfall tax on the big oil and gas companies. “Had it been introduced sooner and without [a] loophole, it would have raised significantly more money… If [the new clause] were to be passed, we would encourage them to look at how much money could have been raised had it been introduced when we first called for it.”

“More than £400 billion has flowed from Scottish waters to the Treasury over the years, with very little coming back the other way”, said Dave Doogan who blamed Labour for creating “a worst-of-all-worlds scenario” with changes to the levy. 

The Exchequer Secretary emphasised the government’s commitment to managing the energy transition in a way that supports jobs in existing and future industries.

Vote: New clause 2 was rejected 113 – 331. New clause 6 was not moved.

Further impact assessments

Five further new clauses were tabled seeking reviews of the impact of measures in the bill.

New clause 1 sought a review of the impact of charging income tax on recipients of the full rate of the new state pension. Introducing it, the Shadow Exchequer Secretary asked if the government would commit to publishing data on how many people receiving the new state pension would pay tax on it. He suggested that this “potential hit” could not come at a worse time for pensioners. Graham Stuart echoed the message and considered the clause ‘sensible’.

Dr Jeevun Sandher (Lab) disagreed, claiming that the triple lock has helped pensioners ‘immeasurably’. 

The Conservatives also proposed new clause 3, seeking a review of the impact of tax changes in the bill on households at a range of different income levels. Lib Dem new clause 5 made a similar proposal.

The remaining two new clauses were also tabled by the Lib Dems. New clause 4 would require the Chancellor to conduct an assessment of the bill’s impact on small and medium enterprises. Sarah Olney (Lib Dem) said it would be a useful tool to understand the broader implications of the legislation on economic prosperity. Jim Dickson (Lab) argued that the government are supporting SMEs by more than doubling the employment allowance and freezing the small business rates multiplier.

New clause 8 would have required the government to produce an impact assessment of the measures in the bill on distilleries, wine producers and the hospitality industry. “They [Labour] will introduce huge amounts of red tape, which will be very complicated, very costly and, ultimately, will push up prices for consumers and the industry”, said Daisy Cooper, its proposer. 

She was backed by two Lib Dem colleagues. Angus MacDonald added that, despite repeated assurances from the government, the food and drink industry continues to face “sharply rising” duty costs. Paul Kohler observed that the new system will have no fewer than 30 different rates of duty. While he acknowledged the government’s broader intentions, he believed that the new regime is not ‘workable’ for wine, where alcohol by volume cannot be predicted with precision until the wine is in the bottle. 

Responding to the new clauses, the Exchequer Secretary said that the end of the wine easement happened at the beginning of February, and the early indications are that firms, warehouse keepers and HMRC have “adapted well”.

On new clause 1, the minister pointed out that in the coming financial year the personal allowance will still be above the level of the new state pension, so it should not apply when it is people’s sole income. Around two thirds of pensioners already pay tax as they also have private pensions, and pay their tax through PAYE or self-assessment. 

The minister opposed all the new clauses, saying much of the information was already publicly available 

Vote: New clause 8 was rejected 176 – 332. The other new clauses were withdrawn or not moved.

Third reading

Opening a brief third reading debate, the Exchequer Secretary, said that the bill delivers on Labour’s manifesto commitments by removing the outdated concept of domicile status from the tax system, increasing the capital gains tax rate for carried interest, increasing the higher rates of stamp duty for additional dwellings, introducing the 20% standard rate of VAT on private school fees, and changing the energy profits levy by extending the period over which it applies and adjusting its rate by 3 percentage points.

Murray thanked officials at the Treasury and in Parliament for their work on the policies and suggested that the bill will play a key role in delivering economic stability, repairing the public finances and laying the essential foundations for growth.

Concluding the debate, the Shadow Exchequer Secretary said that his party do not support the bill, adding that the government need to change course “otherwise we will all pay the price”.

Vote: Bill passed at third reading 339-172.