Ed Milliband to scrap ‘non-dom’ tax status

If elected, Ed Miliband will abolish the colonial-era symbol of inequity in the tax system, by ending the non-domicile rule that permits Britain’s richest permanent citizens to avoid paying tax in the UK.

Non-domiciles, UK residents whose permanent home is abroad, use a rule which was first introduced in 1799 to allow individuals who were born in the colonies to live in England without paying tax on their foreign assets as long as they remained abroad.

Today, Labour will say that the rule is being abused by some of the wealthiest people who make claims of being linked to other domiciles and thus escape paying UK tax on all their income and capital gains. The non-domicile status has been long criticised for being easily negotiated, with tax advisers saying they have never heard of an application being rejected.

To paint a stark contrast, UK domiciles have to pay tax on all their income and gains regardless of where it is generated whereas non-doms only pay tax on their UK sources of income and gains and foreign income or gains remitted to the UK or, alternatively, the recently introduced remittance base charge when appropriate.

More than 115,000 wealthy people are believed to be using the non-dom rule. Miliband will argue that this offends the moral basis of taxation and everyone who is a UK permanent resident should pay full UK tax.

Labour says it is “uncertain” how much revenue the abolishment will raise but expects it to be hundreds of millions of pounds. On the other hand, the Conservatives have criticised the policy and said they raised more money from non-doms than any other government.

Miliband will stress that foreigners who remain in the UK for a short period, on a temporary basis, will still be able to retain non-dom status, although the length of that basis has yet to be announced.

AAT tax policy adviser Brian Palmer commented “it is certainly not the first time in recent years that non-doms’ tax affairs have been looked at.  Indeed, successive governments have tried to tackle this thorny issue and for a variety of non-tax reasons they have pulled back from what is being mooted.”

AAT Comment offers news and opinion on the world of business and finance from the Association of Accounting Technicians.