Q&A: The 'non-dom' row explained

By DAILY MAIL REPORTER
Updated:

 

As Chancellor Alistair Darling stands accused of a climbdown over proposals to increase taxes on foreign businessmen, we explain what it all means.

Alistair Darling

Under pressure: Alistair Darling

What is a 'non-dom'?

Someone who is resident in the UK, but claims it is not their home. Instead, they declare their 'domicile' to be another country. There are thought to be around 117,000 in the UK, though no one knows for sure.

What advantages do they enjoy?

Non-dom status means you pay no tax on your overseas earnings, unless you bring the proceeds into the UK. Money earned in the UK is taxed, though most staff working for international firms avoid that by arranging to be paid in another country. The perk has encouraged thousands of rich businessmen to come to Britain, including Greek shipping heirs, European hedge fund managers and Saudi oil tycoons. However, the majority of nondoms are thought to be Americans working in finance.

How rich are they?

Again, no one is certain. The Treasury says that in the 2004-5 tax year, the last for which figures are available, 65,000 non- doms declared average UK taxable income of £140,000. But this only sheds light on their UK income, not their foreign earnings. There are thought to be at least 2,700 ultra-rich non- doms with more than £15million in spare cash.

What is the Government proposing?

Alistair Darling unveiled plans last year for a flat-rate annual tax of £30,000 on all those claiming non-dom status, coming into effect in April. The Chancellor's scheme will only apply to those who have been in Britain for seven out of the last ten years. If it is cheaper for them to do so, non-doms can choose to pay UK tax on all their earnings, including overseas income.

The move was designed, in part, to counter Tory proposals for a £25,000 tax on nondoms to pay for a scrapping of inheritance tax for everyone butmaires and an end to stamp duty on homes worth £250,000 or less.

How has the City of London reacted?

Spectacularly badly. Business leaders believe the move will discourage investment in the UK. Even Lord Jones, the ex-CBI chief brought into the Government as a trade minister, has warned it will be harder to attract leading businessmen to this country. This week, the US launched an extraordinary attempt to persuade the Government to change its draft legislation. It warned that American businessmen would be hit particularly hard because they would be forced to pay tax twice, once at home and once in the UK.

Is it just the fee that has caused controversy?

No. A £30,000 charge is small change to the wealthiest nondoms. But the Government also proposed to tighten the rules on what counted as bringing an asset into the UK. Critics said paintings being brought for public display, for example, could be subject to a 40% tax. Draft legislation also said non- doms would have to deliver a 'return of particulars' - information on their overseas income and gains. Non-doms with offshore trusts would also be unable to draw income from them without paying UK tax, experts said, and could also face bills for past gains from trusts back to 1998.

What changed last night?

The Treasury said non-doms would not have to give additional information about their foreign income and gains. Historical gains from offshore trusts will not be taxable. The Treasury also said it wanted the charge to be credited against US tax to stop American non-doms paying twice. Money brought into the UK to pay the £30,000 charge itself will not be taxable and art works brought here for public display will incur no tax charge.

Will it be enough to stop the row?

The retreat is likely to satisfy some of the ultra rich nondoms who were mainly concerned about the UK authorities prying into all their affairs. But business leaders remain concerned that others, including Greek shipowners with several family members working in a UK-based company, will still pack up and leave.

Where will 'non-doms' go if they leave Britain?

Most countries, including the US, insist that if you are resident you have to pay taxes there on all of your worldwide earnings. Few countries offer the same loophole as Britain does now. But non- doms could enjoy similar advantages in Switzerland, Monaco, Hong Kong, Singapore, Dubai, Bermuda and the Cayman Islands.

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