The Labour party has said it will scrap the non-domiciled tax status – or the special tax privileges bestowed on foreigners living in Britain.
Ed Balls has said the government could get hundreds of millions of pounds from closing the loophole, which has existed for hundreds of years. But the figures are vague. Opponents of the plan say it would mean skilled migrants move to other, lower tax jurisdictions, denying the UK millions of pounds of tax that these people currently pay.
A non-domiciled resident is someone that is born outside the UK and now lives here, but intends to return to their home-country. It is a peculiarly British status that can be passed through generations. Zac Goldsmith MP, for example, inherited his non-dom status from his father Sir James Goldsmith, even though he was born at Westminster Hospital in London – a fact that caused some embarrassment when he stood as a Tory candidate for Richmond in 2009 (he later relinquished the status).
One in eight UK residents were born elsewhere. But not all of them claim non-dom status. Just 116,000 people have told HM Revenue & Customs that they are non-doms. Only a few thousand of these pay annual fees to keep the status beyond seven years. Those fees are steep, which is why non-dom status is seen as the preserve of the wealthy. Non-doms who have been in the UK for seven or more years have to pay £30,000 annually to claim full tax perks, while those who have been here for at least 12 years must pay £50,000 annually. In December 2013, George Osborne announced plans for non-doms that have lived in the UK for 17 of the last 20 years to pay an annual charge of £90,000. That kind of cash is probably unattainable for all but the very rich.
Individuals with non-dom tax status pay tax on their UK earnings, but do not have to pay UK tax on foreign income, as long as they do not transfer those earnings to the UK. They are not tax dodgers. But large parts of their income elsewhere is not counted for tax in the UK, unlike in the US, where residents pay US tax on all of their earnings. Some non-taxable income could make it back into the UK anyway. Non-doms might use offshore trusts to buy expensive UK homes or loan money to themselves and collect interest-free tax repayments.
Dragon’s Den star Duncan Bannatyne has said he will vote Labour because of Ed Miliband’s “courage” in pledging to scrap non-domiciled tax status.