Currently, wealthy people living in the UK but "domiciled" (ie having their permanent home) elsewhere can apply for...

Ed Milliband{{}}"Ed Miliband's non-dom crackdown is 'cataclysmic'" warned a recent headline in The Telegraph, following the Labour leader's announcement of his plan to abolish non-domiciled tax status should he become Prime Minister. As Labour pointed out on Twitter, William Pitt the Younger created non-dom tax status in 1799 during the Napoleonic Wars (the year income tax was introduced).

Currently, wealthy people living in the UK but "domiciled" (ie having their permanent home) elsewhere can apply for non-dom status to avoid paying UK tax on overseas earnings and capital gains. They only pay tax on "money entering Britain" or sums below £2,000 in the tax year.

According to The Independent: "For a flat annual charge of £30,000-£50,000 it is possible to opt out of tax on overseas earnings. The arrangement is used by the international super-rich and can lead to dramatically reduced tax bills for those with businesses registered in low-tax jurisdictions."

Abolition

During a speech at the University of Warwick on 8 April Miliband said: "Why should people be able to enjoy all the virtues of our great country and not pay tax like everyone else? Why should there be one rule for some people and another rule for everyone else? It isn't just. It holds Britain back. The next Labour government will abolish the non-dom rule."

According to The Telegraph: "Tens of thousands of entrepreneurs and business leaders will leave Britain because of Labour's 'cataclysmic' plans to scrap the 'non-dom' tax status, experts have warned. Leading tax barristers warned that 30,000 of Britain's 115,000 foreign investors could leave Britain in the wake of Ed Miliband's announcement that a Labour government would abolish the tax rules surrounding non-doms."

Miliband claimed hundreds of millions of pounds could be raised by abolishing current non-dom rules (or "loopholes" as Labour described them on Twitter), which the Labour leader said was "the right thing to do". But according to The Telegraph, non-doms still pay £8.2bn in tax ("as much as 10 million low-income workers" they estimate).

Archaism

You might not expect the Financial Times to come out against existing non-dom rules, however, a 1 March FT View piece ("The madness of King George III's non-dom tax system") did just that. It read: "Britain should sweep away the archaism that allows people to claim a domicile that differs from their nationality or residence. Few other civilised countries feel the need to offer such privileges to the wealthy. Liability to taxation should be solely based on residence."

It continued: "More than two centuries after the introduction of income tax by Mr Pitt, his successors should end the egregious situation where the wealthiest enjoy the privileges of UK residency without paying their fair dues to the exchequer. The anomaly of non-dom status cannot be defended. It should be scrapped."

Disarray

The day after Miliband made his announcement the Daily Mail accused Labour of being in "disarray over non-doms" (embarrassingly, footage from earlier this year emerged of shadow chancellor Ed Balls warning that abolishing non-dom rules would cost Britain money), with its leader backtracking by "effectively only proposing a time limit" rather than abolition.

According to the Daily Mail, Graham Aaronson QC, "who chaired an independent committee which drew up new rules against tax avoidance, said the non-dom regime did need reform" but was "scathing about Labour's proposals, which he said would cost the country dear". He advised the "Treasury two years ago [that] the right to pass [non-dom status] on to heirs should be scrapped, and suggested he also favoured removing the right for British citizens to claim it."

Blog written by freelance editor, copywriter and Start Up Donut editor Mark Williams.

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