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Rachel Reeves could water down her planned raid on nom-doms amid fears the move would fail to raise any money, according to reports.
The chancellor had hoped to raise about £1bn a year by cracking down on the tax perk available to wealthy foreigners living in the UK.
But there are concerns that those affected could simply leave the country, meaning the move would fail to generate any income for the government.
The proposal was part of Labour’s manifesto ahead of July’s election, but officials said Ms Reeves could overhaul the plan ahead of her 30 October Budget if the numbers did not add up.
One told the Financial Times: “We will be pragmatic, not ideological. We won’t press on regardless, but we are not going to abandon this completely.”
The term “non-domicile” describes a UK resident whose permanent home – or domicile – for tax purposes is outside Britain – meaning they only pay money on earnings made in the UK.
A Treasury spokesperson called the report “speculation, not Government policy” and pledged to remove “the outdated non-dom tax regime”.
A costings document in June said Labour planned to raise billions by closing the “non-dom loophole” for wealthy foreigners living in the UK and cracking down on tax avoidance.
Nimesh Shah, of tax advisory firm Blick Rothenberg, told Radio 4’s Today programme that wealthy individuals were planning on leaving the UK “over the next 12 to 18 months” over the policy.
In August, Keir Starmer pledged the Government was cracking down on non-doms as he warned the Budget would be painful.
In a speech, the prime minister said: “Those with the broadest shoulders should bear the heavier burden, and that’s why we’re cracking down on non-doms.”
A report in The Guardian suggested Treasury officials fear estimates due to be issued by the Office for Budget Responsibility will forecast that the policy will raise no money because of the risk of people who are super-rich leaving the UK.
There are concerns that the OBR forecast would predict the policy could cost the Government money due to non-doms limiting their time in the UK, the report said.
One of the most well-known individuals making use of non-dom status was former prime minister Rishi Sunak’s wife, Akshata Murty, who was embroiled in controversy during Mr Sunak’s time as chancellor.
After details of her status with revealed by The Independent in April 2022, she said she would start paying UK tax on her earnings generated outside Britain.
An HM Treasury spokesperson said: “These reports are speculation, not Government policy. The Independent Office for Budget Responsibility will certify the costings of all measures announced at the Budget in the usual way.
“We are committed to addressing unfairness in the tax system so we can raise the revenue to rebuild our public services.
“That is why we are removing the outdated non-dom tax regime and replacing it with a new internationally competitive residence-based regime focused on attracting the best talent and investment to the UK.”