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Labour’s non-dom policy – the final straw?

Kit Klarenberg
Written By:
Kit Klarenberg
Posted:
Updated:
10/04/2015

As reported by Your Money, Ed Miliband has pledged that a Labour government would close current tax loopholes relating to ‘non-domiciled’ status.

Current rules enabling wealthy citizens to avoid certain tax liabilities on foreign income and gains were blasted as “indefensible” by the Labour leader, and were said to have transformed Britain into “an offshore tax haven.” There are currently over 100,000 wealthy individuals with ‘non-dom’ status in the UK, with prominent examples including James Caan and Lord Ashcroft.

However, within hours of Miliband’s announcement, several commentators had warned the policy could have a deleterious impact on the wider UK economy. Shadow Chancellor Ed Balls claims closing the loophole would net the Treasury “hundreds of millions” annually, but his assertion is challenged by Geoffrey Todd of Boodle Hatfield. “This would be a massive leap in the dark. The tax regime at present encourages foreign investment in the UK from overseas. There is a danger that the changes could deter overseas investors from settling and investing in the UK and ultimately decrease the tax collected from these individuals, rather than raise extra funds.”

Sophie Dworetzsky of Withers believed that the proposals “would have a cataclysmic effect on the British economy.”

“Non-doms benefit Britain…there is no room for argument on that point. It is better to have them here and contributing to the economy than moving back to Paris, New York or Moscow and contributing nothing.”

Comparing the policy to “using a sledgehammer to crack a nut”, Piers Master of Charles Russell Speechlys said the loophole “has benefited the UK hugely.”

“People from all over the world have come here to work, buy property, spend money with our businesses and – yes – pay taxes,” Master continued. “It’s easy to overlook that non-doms do in fact pay UK taxes – including income tax, capital gains tax, VAT, and stamp duty land tax – and many of them also pay a levy of between £30,000 and £90,000 per year for the benefit of staying in the UK.”

“The globally mobile have seen London as a safe and welcoming place to base themselves for a long time, but this, taken together with proposals to impose a mansion tax, is a signal that the climate could be turning more hostile,” Master concluded. “It is easy for high net worths to leave –they have been in France under Hollande. Push them too far, and there will be an exodus.”

Nigel Green, founder and chief executive of deVere Group, likewise believes the policy would prompt an “exodus”, branding the plan “reckless”, and a “short-sighted attempt at winning votes.”

“These are the individuals who have the resources to relocate most easily – and many, I suspect, will do so, should this plan come to fruition. Can Britain really afford to lose them? Every country is determined to attract these high-net-worth, wealth and job creating individuals to boost their economies…this move proposed by Labour seems, frankly, absurd.”

“Rather than attack the non-doms, I would suggest that a better solution would be to ultimately cut the tax burden for everyone,” says Green. “This would allow Britain to be globally competitive without affording certain people additional privileges.”

However, James Hender of Saffery Champness said the proposal was unsurprising. “Governments of both hues have been trying to extract more tax from non-doms for some time,” he noted. “The writing has been on the wall for them for six or seven years now.”

“I have already taken calls from clients who are concerned about this proposal and want to plan ahead. There will be a stark choice for some if the Labour Party wins the election: adapt or leave. This change could be the last straw for certain people who are being hit with higher taxes from different directions.”


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