Budget2011: Non-dom rules "are politically motivated"

THE IMPOSITION OF extra fees on non-domiciled individuals is a political move that "offers no discernible policy benefit", a leading tax partner has claimed.

Baker Tilly's George Bull said that the increase in the annual charge levied on non-doms who wish to retain access to the remittance basis of taxation was a "political measure". The whole regime should be reviewed, he added.

Non-doms who have been in the UK for seven years or longer must pay an annual fee of £30,000 to avoid paying taxes on overseas income. The chancellor announced that this fee would be retained, but would rise to £50,000 for those who have been here for 12 years or longer. In return, the government will remove the tax charge when non-doms bring foreign income or capital gains to the UK for the purpose of investing in a British business, Osborne said.

The government also announced that it will consult in June on proposals to introduce a statutory residency test. There would be no further changes to the regime in this Parliament, Osborne added.

Bull said that although Osborne was trying to remove the issue from the political agenda, the regime as a whole should be looked at again. "If the chancellor is trying to make the UK more attractive to overseas operations, he needs to think whether the non-dom levy is consistent with this," he said.

Furthermore, relaxed immigration rules that encourage money to be brought into the country run contrary to the regime, he added. There is "no surprise" about the tax breaks for investment in UK companies, but "how it is going to be policed is anybody's guess", he added.

However, Alex Henderson, tax partner at PwC, said that the increase in the £30,000 charge is offset by the certainty they will receive in the foreseeable future.

Francesca Lagerberg, head of tax at Grant Thornton, said that there will be criticisms that the chancellor did not go far enough and that a more aggressive stance should have been taken. "But the chancellor had a hard balancing act. He had to act to appease those critics but not make the UK an unattractive place to invest," she said.

The proposal for a statutory residency test was welcomed throughout the tax profession. Lagerberg said the chancellor had "pulled the rabbit out of the hat" with this proposal.

"This is good news as will provide certainty to the international mobile community who currently can not always be sure of their UK tax liabilities," she added.