Legal community slams Budget’s non-doms policy

The Chancellor Alistair Darling has pushed ahead with plans to hit non-domiciled residents with a £30,000 annual tax, with the levy kicking in once they have lived in the UK for seven years.

The non-dom issue has been much debated in recent weeks and for Ashley Crossley, tax partner at Baker & McKenzie, the Budget announcement came from a chancellor bowing to City pressure.

“The Government has watered down its half-baked proposals on non-doms in the face of fierce opposition from the City,” he said. “Disclosure of offshore assets proposed by the Government caused widespread concern among the non-dom community and the Government has reacted to that.”

The Budget report stated that non-dom income and gains held in offshore trusts will only be taxed when they are remitted to the UK, even if these come from UK assets, and clarified that children will not be liable for the £30,000 charge. The report also clarified that art works brought into the UK for public display or repair and restoration will not face new tax charges while people with unremitted offshore income and gains of under £2,000 will be exempt from the £30,000 charge.

That said, Crossley pointed out: “Non-doms are still considering leaving, which is the last thing London needs in the face of the global credit crunch.”

For Katherine Fidler, an associate at Mishcon de Reya, the Government’s plan to raise revenue by hitting wealthy foreigners with a £30,000 levy could prove counter-productive if they all sell up and move to Geneva or Monaco. And that is not the only non-dom issue she sees coming out of this year’s Budget.

“In keeping with the ‘clarificatory’ announcement by Dave Hartnett [acting chairman of HM Revenue & Customs] of 12 February, the Government announcement that trust income and gains will only be taxed when they are brought into the UK ‘even if they come from UK assets’ only serves to muddy the waters further.

“The remittance basis has only ever applied to overseas income and gains and yet that now seems to be turned on its head. If it’s true it’s good news but in reality it suggests a fundamental lack of understanding of the issues resulting from the changes being rushed through.”

Simon Witney, a corporate partner at SJ Berwin, said the £30,000 non-dom charge could prove self-defeating if it drives those residents away from the UK particularly as, according to Treasury estimates, they would contribute £800m in taxes in 2009/10 and £500m in 2010/11.

“Non-doms have been instrumental in achieving the global dominance of London as a financial centre that attracts intellectual talent from all over the world. UK plc is heavily reliant on financial services and as the economy enters a fragile period this is a bad time to upset the balance,” added Witney.

Withers wealth planning partner Stuart Skeffington feels that, while the Budget has seen a softening of certain non-dom provisions initially announced, “it remains to be seen whether these changes will be sufficient to appease the non-dom community.”