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Labour will scrap non-dom tax status

/ 8 April 2015

Ed Miliband is to announce plans to abolish the non-domiciled tax rule. In a speech in Coventry, Mr Miliband will say non-dom status is being wrongly used to avoid paying UK taxes and that some who have lived abroad and return to Britain qualify for the status on the basis of little more than an overseas newspaper subscription, a burial plot abroad and a foreign bank account.

The move could further alienate Labour from the business and finance community who are concerned about Labour plans to reintroduce the 50p tax rate and introduce a mansion tax. Mr Miliband will say: “There are people who live here in Britain like you and me, work here in Britain like you and me, are permanently settled here in Britain like you and me, but aren’t required to pay taxes like you and me because they take advantage of what has become an increasingly arcane 200-year-old loophole. There are now 116,000 non-doms, costing hundreds of millions of pounds to our country. It can no longer be justified.”

There will however be exceptions for students and those working in Britain temporarily. Mr Miliband’s announcement comes as 30 more UK business leaders sign a letter declaring their support for Tory-led economic policies.

Source: The Times, Financial Times,  The Independent, The Guardian, The Daily Telegraph

This is a gamble in both a financial and a political sense.

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 in 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.

Politically, the gamble is scarcely less: Labour must be judging that the electoral gain from those who will see the proposal as “enhancing fairness” will outweigh the opprobrium from those who will see it as further evidence of Labour’s hostility towards wealth creation and propensity to tax and spend. We suspect that this is a gamble which Mr Miliband will live to regret: but only time will tell. Meanwhile non-doms cannot make plans with any certainty.

For a balanced and nuanced view of the proposal, we like Robert Peston’s piece here.