The indications are that he will either limit the crackdown to longer-term overseas residents – possibly those in the UK for more than four years – or apply UK tax only to the portion of their worldwide income generated within the UK.
Treasury advisers are believed to have warned the chancellor that full implementation would be counter-productive because it would risk an exodus of individuals whose enterprise is beneficial to the UK economy.
Pressure to act has build up in the wake of embarrassment over ‘steelgate’ with the widespread assumption that Lakshmi Mittal, the Indian steel baron who has donated large sums to Labour and obtained a letter from prime minister Tony Blair, backing his bid for the Romanian steel industry, is among those benefiting from the ‘non-domicile status’ loophole.
The concession has been estimated by opponents to cost the Exchequer £5bn a year – ignoring the likely exodus of a large proportion of beneficiaries if it were wholly withdrawn.
Brown’s difficulty is that a limited assault on the perk might result in Mittal remaining a beneficiary, leading to further allegations.
The pledge of the crackdown was contained in a Labour document in 1994 which complained it was ‘not fair that a wealthy few be allowed to work or live in the UK without making a fair contribution through taxation’.
Current rules allow ‘foreigners’ – who may nevertheless have British passports -to avoid most UK tax if they maintain substantial ties to a foreign country.
In the Commons paymaster general Dawn Primarolo told Newcastle Central Labour MP Jim Cousins in reply to a question, that individuals ‘not domiciled’ in the UK are liable to UK tax on income and gains as they arise and on overseas income and gains which are remitted to or brought into the UK.
Asked by Runnymede and Weybridge Tory MP Philip Hammond if the chancellor is going to end non-domiciled tax status, she said merely that the Brown ‘keeps all aspects of the tax system under review’.
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