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Non-doms defended after Miliband outlines plans to scrap tax status

by: Carmen Reichman
  • 09/04/2015
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Non-doms defended after Miliband outlines plans to scrap tax status
Non-domiciled residents' contributions to the UK Exchequer have been defended after Labour leader Ed Miliband confirmed his party would abolish the 'non-dom' tax status if it came to power following next month's general election.

Law firm Pinsent Masons said ‘non-doms’, as well as paying almost £6.2bn in income tax in 2012-2013 and £223m in the remittance based charge, also have a positive impact on the UK economy because of their “huge spending power”.

On 8 April, Ed Miliband said Labour had “found a way” to abolish the status, which allows certain citizens living in Britain indefinitely to claim another country as their domicile and claim the resultant tax benefits.

“It’s the right thing to do,” Miliband said. “In a way people are going to have a choice at this election. They can decide that they want to carry on with the non-dom rule… which has one rule for one set of people and another rule for another set of people, and we’re going to abolish it.

“It goes to this bigger choice we face: how do we succeed as a country? I just have a different view from them [the Conservatives]. They think that if you look after those at the top it will help everybody else. I don’t think it works; I think you’ve got to put working people first.

“That means taking on tax avoidance because we cannot allow tax avoidance to continue in the way it has under this government, and we’re going to crack down on it.”

Contributions

However, Paul Noble, tax director at international law firm Pinsent Masons, said non-doms make a “significant” contribution to the UK Exchequer.

“Non-doms are often portrayed as a group who exploit loopholes to pay little or no tax. In fact they make a significant contribution.

“They have huge spending power, invest in UK businesses and the capital they deploy creates thousands of jobs in the UK. There are plenty of other countries competing to welcome these non-doms to their shores.

“If UK taxes on non-doms are increased then at the very least they are very likely to review their exposure to UK taxes and how their assets are held.

“Those with deep roots in the UK are less likely to relocate elsewhere. However the biggest impact may be on the UK’s ability to attract new entrepreneurs, senior executives and other high net worths into the UK.”

Canada Life International, meanwhile, said the abolition of the non-dom status would have a knock-on effect for other tax liabilities.

Managing director Sean Christian said: “It appears that Labour want to link all taxes to residency, so that all residents of the UK pay taxes in the same way irrespective of domicile.

“If this principle applied to all taxes then the scope for UK inheritance tax could increase as the rules around deemed domicile would also be abolished. UK residents would then pay UK inheritance tax on their worldwide assets, irrespective of how long they have been in the UK – this would highlight more than ever the need for effective estate planning.”

‘Lose out’

London accountancy group Blick Rothenburg also criticised Labour’s plans.

Partner Nimesh Shah said: “The government needs to be mindful of the fact that ‘non-doms’ and their businesses are internationally mobile by their very nature, and could decide to base themselves elsewhere.

“A non-dom paying the flat fee of £60,000 would comfortably put them in the top proportion in terms of tax contribution. They may simply choose to become non-tax resident in the UK, and with the UK’s Statutory Residence Test it could be possible for a ‘non-dom’ to still spend up to 120 days in the UK without becoming tax resident. If this were to happen, the Treasury would lose out on any tax revenue and the wider economic contribution altogether.

“The next government must assess in detail the economic impact of any further changes to the ‘non-domicile’ regime, otherwise they could be unknowingly faced with a severe dent to the UK’s economy.”

Charge

In last year’s Autumn Statement, Chancellor George Osborne announced a new £90,000 charge for people who are non-domiciled for tax purposes but have lived in the UK for 17 of the last 20 years.

The previous Labour government had initially introduced the levy, charging non-domiciles £30,000 after being non-domicile in the UK for seven of the previous ten years for tax purposes.

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