Legal community slams Budget's non-doms policy
12 March 2008
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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.”
Readers' comments (4)
James Quarmby | 12-Mar-2008 4:44 pm
Non-doms
The overall impression is of a tacit acknowledgment that the original provisions were overly aggressive, poorly thought out and shoddily drafted.
This is yet another sad reflection of the current Treasury practice of 'shoot first - think later'. One would hope that our elected representatives would be capable of learning from their mistakes, but there has been no real evidence of this to date.
One of the main sources of antagonism for non-doms - the disclosure process
- has been completely removed and is to be welcomed. The re-classification of the £30,000 from a fee to a tax on unremitted income/gains is also a major concession and will help our influential American friends (surely no coincidence).
Will non-doms still leave in droves? Sadly, many have already started making plans and though some will change their minds (particularly relevant here is the disclosure rules) there has still been a massive loss of confidence in the UK government. What our clients are telling is that they feel this this is just the beginning of a concerted attack against them and its best to get out now, while the going is good. I think the Treasury is aware of this sentiment as we also have a promise in the Budget that there will be no further changes for 'this parliament and the next' (God forbid we should have another Labour administration!).
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Mark Summers, partner Speechly Bircham | 12-Mar-2008 4:47 pm
Budget - non-doms
For clients perhaps the most significant statement is that there will be no further changes to the residence and domicile rules for the life of this Parliament and the next. The way in which the Government has changed, dithered and backtracked on its proposals has resulted in clients wasting professional fees trying to keep up and rearrange their affairs in an unacceptably short timescale. This reassuring message in respect of the future stability of the tax system should go a long way towards repairing the damage and encouraging non-domiciles to come to or remain in this country.
We have still to see the legislative detail on the changes but the announcements are encouraging and should be significant enough to continue to make London and the UK a destination of choice for wealthy foreigners provided that they are properly professionally advised.
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Tracy Hofman | 13-Mar-2008 8:18 pm
Some of Us Receive Fairer Treatment Than Others?
Alistair Darling's final pronouncement on a 'foreigner levy' - [a tax on on those who chose to retain a domicile outside of the UK, despite being resident in the UK) was disappointing, muddled and stuck two fingers up in the air at his promise of injecting fairness into the tax regime.
I, as a South African domicile holder, will pay a levy of £30,000 and lose my capital allowances. My American neighbours will pay a £30,000 tax which will be deductible against US income tax. How is it fair or just that i should pay a "levy" and another 'non-dom' should pay a tax?
Meanwhile the Super-Rich - those whom the Labour alligned Unions see as being the enemy of the socialist state - have won almost all the concessions they asked for.
I have always believed that the Labour government resembled a snobby, social climber, desperate to clamber aboard the floating gin palaces of the poshocracy. The brouhaha about non-doms and the unbelievably cringing climb-down proves my point.
But what are Labour going to do when the Unions realise that property in Eaton Square is still beyond their pay packet and the likes of Sir Philip Green and Laksmi Mittal are continuing to swan around in Gulfstream Jets and Bentleys without paying a 'fairer share' of UK tax?
If I were dear Alistair and Gordon, I'd start looking for new jobs!
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Anonymous | 12-Dec-2009 2:37 pm
Bankers should have huge bonuses and non doms should be made richer by not taxing them in any way. Also the wealthy should be enabled to maintain their ascendency because if we don't our system of capitalism will collapse and we will have to find an alternative system.
If we continue to penalise the rich they will go elsewhere and our country will go bust. The graduall power taken by a domocracy which is gradually, through education and freedom of information are realising the inherent division which must(?) exist to make such a system viable. The dictatorship of the proletariate will eventually see capitalism's destruction. The masses enjoy the trappings of this system but dislike its inherent inequalities and will, given time be instrumental in its demise. The sub text to this is that if you are a selfish and self seeking individual then vote for the bankers and non doms.
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