Ed Miliband announced on Wednesday that if the Labour party were elected, it would abolish the rule for non-domiciled residents, which can be claimed by UK residents born outside the UK and which – subject to an annual charge of at least £30,000 – allows UK tax to be levied on offshore income and gains only if they are brought into the UK.Miliband said that non-dom status was ‘a symbol of tax avoidance’ and ‘makes Britain an offshore tax haven’, while shadow chancellor Ed Balls said that scrapping the non-dom rule would raise ‘hundreds of millions of pounds’.
The move has been greeted with concern from some professionals. ‘It is a gamble in both a financial and a political sense,’ warned BKL Tax. ‘There are many financial unknowns, including the level of overseas income and gains that go untaxed under the current system (for they are quite properly not reported); the planning, including asset shifting, which would undoubtedly be undertaken in the face of such a proposal; the number of individuals currently resident in the UK and paying the non-dom “user charge”, whose response to such a change would be to up sticks and leave; the number of individuals who in the future would be deterred from locating to the UK; and, crucially, the effect on the wider UK economy of pulling out the welcome mat from under the feet of a numerically small but wealthy and influential group of people.’
Blick Rothenberg partner Nimesh Shah agreed, saying: ‘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.’
Mark Pearce, tax partner at Thomas Eggar, said: ‘Simply abolishing the non-dom rule would be a disaster for the UK economy, as it would inevitably lead to a mass exodus of wealth and talent from the UK.’ He added: ‘Politicians are making sensationalist comments for column inches without giving true thought to the consequences of their stated position.’
However, tax barrister Jolyon Maugham QC argued on his blog that the non-dom rule is ‘an unsightly bribe to those with some foreign connection to come to or remain in the UK’. When evaluating such proposals, one must have regard not only to yield – which he suggested would be ‘well north of £1bn’ – but also to fairness. And leaving aside questions of fairness, ‘a good change to the remittance basis is one which constrains the likelihood of huge behavioural effects’, he wrote.
‘As to prospective immigrants, what’s attractive about Labour’s proposal is that it gives people a decent period in the UK to enjoy the remittance basis. Long enough to put down roots … such that they might be disinclined to leave when the incentive lapses. And as to prospective émigrés, the data … suggests that, whilst some will leave, one shouldn’t expect too many to do so.’
Ed Miliband announced on Wednesday that if the Labour party were elected, it would abolish the rule for non-domiciled residents, which can be claimed by UK residents born outside the UK and which – subject to an annual charge of at least £30,000 – allows UK tax to be levied on offshore income and gains only if they are brought into the UK.Miliband said that non-dom status was ‘a symbol of tax avoidance’ and ‘makes Britain an offshore tax haven’, while shadow chancellor Ed Balls said that scrapping the non-dom rule would raise ‘hundreds of millions of pounds’.
The move has been greeted with concern from some professionals. ‘It is a gamble in both a financial and a political sense,’ warned BKL Tax. ‘There are many financial unknowns, including the level of overseas income and gains that go untaxed under the current system (for they are quite properly not reported); the planning, including asset shifting, which would undoubtedly be undertaken in the face of such a proposal; the number of individuals currently resident in the UK and paying the non-dom “user charge”, whose response to such a change would be to up sticks and leave; the number of individuals who in the future would be deterred from locating to the UK; and, crucially, the effect on the wider UK economy of pulling out the welcome mat from under the feet of a numerically small but wealthy and influential group of people.’
Blick Rothenberg partner Nimesh Shah agreed, saying: ‘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.’
Mark Pearce, tax partner at Thomas Eggar, said: ‘Simply abolishing the non-dom rule would be a disaster for the UK economy, as it would inevitably lead to a mass exodus of wealth and talent from the UK.’ He added: ‘Politicians are making sensationalist comments for column inches without giving true thought to the consequences of their stated position.’
However, tax barrister Jolyon Maugham QC argued on his blog that the non-dom rule is ‘an unsightly bribe to those with some foreign connection to come to or remain in the UK’. When evaluating such proposals, one must have regard not only to yield – which he suggested would be ‘well north of £1bn’ – but also to fairness. And leaving aside questions of fairness, ‘a good change to the remittance basis is one which constrains the likelihood of huge behavioural effects’, he wrote.
‘As to prospective immigrants, what’s attractive about Labour’s proposal is that it gives people a decent period in the UK to enjoy the remittance basis. Long enough to put down roots … such that they might be disinclined to leave when the incentive lapses. And as to prospective émigrés, the data … suggests that, whilst some will leave, one shouldn’t expect too many to do so.’
