Darling's non-dom nightmare rumbles on

The debate over raising tax on non-domiciles is getting increasingly acrimonious. But is Alistair Darling preparing for another one of his u-turns?

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Last Updated: 31 Aug 2010

After the debacle over Capital Gains Tax, Darling has found himself in an unenviable position once again. The business world has been up in arms over the government’s proposal to close the tax loophole that exists for non-doms – i.e. those people who live here but claim their home is actually elsewhere – which means that they don’t have to pay tax on earnings or capital gains from abroad.

The government’s plan is to apply a £30,000 charge on non-doms that will be levied once they’ve lived here seven years. Which, incidentally, isn’t so different from the £25,000 levy proposed by the Tories last October that kicked the whole debate off. Beyond that there’s a host of complicated changes to how the government treats offshore trusts. The fear, widely voiced, is that the tightening of conditions will discourage investment in the UK and prompt a wealth exodus, with all those rich foreigners in private equity suddenly shipping out to Switzerland and taking thousands of jobs with them.

One sector that has been cited is the Greek shipping industry. Around 100 Greek family-owned shipping companies run global businesses from London headquarters, contributing an estimated £5.12bn to the UK financial services industry. And the industry is rumoured to be planning to relocate to Greece if the generous tax arrangements are abandoned.

On the other hand, Darling faces the obvious question from the rest of the country – isn’t it about time such wealthy foreigners who are long-term UK residents paid their taxes like the rest of us? After all, Britain is a rare example of leniency when it comes to non-doms. Most countries, including the US, tax non-doms on their earnings globally, not just those acquired in that country.

Darling’s attackers are arguing that the government shouldn’t worry about losing a little tax revenue. Surely, they say, it’s a small price to pay for the financial wallop these wealthy foreigners give us. But there are a lot of British people out there paying more tax than ever that may well disagree.

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