Labour's non-dom plans greeted with caution by practitioners

LABOUR’S PROPOSALS to abolish the non-domicile status is already making waves, drawing both vigorous support and criticism subsequent to its announcement this week.

As far as advisers are concerned, there is concern over the level of reliable information on all sides of the debate, according to Baker Tilly’s head of tax George Bull.

Indeed, he points out on a historical level, while the perception is that non-dom status favours the rich, the roots of the introduction of the system were about ensuring fairness and equality.

In Bull’s weekly tax update he referred to a quote from Liberal chancellor of the Exchequer Lloyd George said in 1914, when the modern concept of domicile entered the tax code: ‘These poor men [generally men] roll up their money in companies, in land, and securities abroad, and they ought not to escape when the rich of this country have to pay. I am for equality in this respect: A great landowner pays in full on his land, and I have some sympathy for him when others are rolling up their money abroad and avoiding taxation. I want equality of treatment’, said the chancellor.

On a practical level, many are concerned that the rule changes could deprive the UK of billions of pounds in both tax and economic activity, driving wealthy non-doms to more docile jurisdictions.

In all, non-doms contributed around £6bn in income tax in 2012/13 and £223m in the remittance-based charge, according to law firm Pinsent Masons.

Political and financial ‘gamble’

Despite that, the move represents a political and financial gamble, according to Top 50+50 firm BKL.

“There are many financial unknowns including the level of overseas income and gains that go untaxed under the current system (for they are quite properly not reported),” it stated.

These ‘unknowns’ flagged up by BKL include: the planning including asset shifting which “would undoubtedly be undertaken in the face of such a proposal”; the number of individuals currently resident in the UK and paying the non-dom user charge “whose response to such a change would be to up sticks and leave”; the number of individuals who in the future would be deterred from locating to the UK; and “crucially”, according to BKL, the effect on the wider UK economy of pulling out the welcome mat from under the feet of a numerically small but wealthy and influential group of people.

That said, few are surprised, as Saffery Champness head of private wealth James Hender has noted.

“Governments of both hues have been trying to extract more and more tax from non-doms, and the writing has been on the wall for them for six or seven years now.

“I have already been taking calls from clients who are concerned about this proposal and want to plan ahead. There will be a stark choice for some if the Labour Party wins the election: adapt or leave,” he said.

The Institute of Directors is already warning that while it’s unclear whether the move would translate into great tax yields, it could prove damaging to the UK’s international reputation.

However, Dragon’s Den tycoon Duncan Bannatyne has claimed he plans to vote Labour following the party’s “courage” to eradicate what he described as an “unfair advantage” to those eligible. It represents a U-turn for the businessman, who last week put his name to a letter alongside 100 other prominent business leaders including EY UK managing partner Steve Varley backing the Conservatives’ economic policy.