Tax experts warn about implications of new tax attack on non-doms in UK

News - Tax

Written by Ray Clancy

Monday, 24 May 2010 10:30

Proposals from the new coalition government in the UK re-opens the debate over the tax status of non domiciled individuals, it is claimed.

While it is not yet clear what the govt will do, both parties’ manifestos proposed raising more tax from non-doms who are usually foreign born UK residents. Some experts believe any further attack on their tax issues could create an exodus and deter wealthy individuals from coming to the UK.

Currently, non-doms can avoid paying tax on offshore income and capital gains for their first seven years in the UK, after which they can opt to pay an annual charge of £30,000 to maintain this tax status. The rules were tightened up in 2008, when changes designed to raise an extra £500 million of tax a year were introduced after a fractious debate.

Chris Sanger, head of tax policy at Ernst & Young, said further changes to the non-dom rules would be a ‘real deterrent for wealth-creating individuals to come from overseas’.

According to David Kilshaw a tax partner at leading accountants KPMG non-doms will hope that any further review of the tax rules will be on the basis of proper consultation and a sensible time frame for any proposed new legislation.

‘There may be a grain of hope that this may be a positive development and that the frankly unworkable current rules might be amended especially the definition of remittances by family members and the treatment of non-sterling bank accounts. What we need more than anything is stability not another raft of small print,’ he said.

‘You cannot overestimate the psychological damage if people think any time there is a change in government there is another attack on non-doms,’ he added.

Francesca Lagerberg, head of tax at Grant Thornton, said the government should consider changes in the light of its commitment to make the UK more attractive for multinationals. More than one third of FTSE 100 chief executives were foreign nationals who were likely to be non-domiciled, according to PricewaterhouseCoopers.

In its pre-election manifesto the Conservatives planned to have a simple flat rate levy on all non-doms to pay for its plan to lift the inheritance tax threshold which has now been delayed. The Liberal Democrat manifesto said the tax advantages for non-doms should be limited to the first seven years of living in Britain, which would affect about 4,000 of the wealthiest non-doms and might raise additional revenue, depending on whether individuals opted to stay in Britain and their ability to use complex tax planning techniques.

In 2008, Alistair Darling tried to reassure non-doms in the wake of a furore over the last set of changes by promising not to revisit the rules ‘for the rest of this parliament or the next’, but his commitment is not binding on the new government.

The agreement also contained no further details about capital gains tax changes, prolonging uncertainty about whether an increased rate might be introduced next month and the scale of the exemptions for business assets.