Ed Miliband will once again claim to have set the political agenda just weeks away from the general election after the issue of tax perks for wealthy individuals not ‘domiciled’ in the UK became a key battleground in the wake of a surprise Labour pledge.
The Liberal Democrats attacked Labour’s plans to abolish any tax advantages for most non-domiciled UK individuals, claiming that during 13 years in government the party let ‘non-doms’ off £2bn in tax.
The coalition partner stated changes the government has made in this parliament, increasing the payment long-term residents claiming non-dom status have to pay to a maximum of £90,000 a year, have increased the amount of money non-doms pay and raised £160m per year.
On the other hand, a fresh tax break, business investment relief, has offered non-doms the opportunity to invest in businesses and even property without triggering UK taxes.
The Conservatives will say Labour’s policy risks driving wealthy job creators and investors out of the UK, but having been put on the back foot by an undoubtedly popular policy George Osborne is expected to announce his own clampdown, according to the Times.
Plans being drawn up for the manifesto launch next week could see rules changed to prevent wealthy individuals inheriting non-dom status from their father, as is currently the case.
The Lib Dems have also proposed ending the ability to inherit the status, with their chief secretary to the Treasury Danny Alexander adding it will pledge to further ramp up annual charges for long-term residents.
He said: “In the next parliament we want to go further by radically reforming the rules and significantly increasing the charges for non-doms to secure an extra £500m for the public purse.
“We will ensure that non-dom status cannot be inherited, and that long term residents in the UK pay tax as residents.”
Labour leader Ed Miliband argued yesterday (8 April) that people in the UK for a genuine temporary short period will be able to retain non-dom status, with experts suggesting this period would have to be at least five years. The party is thought to be proposing a three-year cut off.
Labour has not been able to put a figure on the likely revenue implication of the move, but the Times has quoted figures suggesting that 115,000 claimed non-dom status in 2013. The opposition believes the abolition will raise at least “hundreds of millions” of pounds.
The Lib Dems joined the Tories in noting that when shadow chancellor Ed Balls was a Treasury minister in the last Labour government he admitted the vast majority of non-doms spend less than five years in the UK, putting a question mark on any revenue raised.
The financial services industry reacted to Labour’s plan by requesting more detail, with Baker Tilly’s senior tax partner George Bull stating that Labour’s announcement was dogged by misinformation on all sides.
Questioning how much the measure would actually raise, he said that while the Labour Party is talking about hundreds of millions of pounds, there does not appear to be any evidence to back this up.
“As regards wealthy business executives, the impact of the removal of non-dom status could well result in their companies picking up the bill,” stated Mr Bull.
“For the remaining jetsetters, they will have to make up their own minds based on their individual circumstances, but the idea that such a policy will lead to a flight of talent and money is vastly over-exaggerated.”
Sean Christian, managing director at Canada Life International, commented that any changes to domicile rules could help make the tax system easier to understand, but added that the detail is always important.
“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.”
peter.walker@ft.com, ashley.wassall@ft.com
