Non-doms: Darling's fiscal fiasco

The Treasury has softened its plans to tax non-domiciles, insisting the change is a 'clarification' not a climb down. But has the damage already been done?

Last Updated: 31 Aug 2010

Alistair Darling has confirmed he will introduce concessions to his non-dom tax plans, in order to quell the hysteria coming from business circles over a possible talent exodus and decline in foreign investment.

A key fear was that the £30,000 levy on long-term non-doms – which is set to remain – would lead to snooping into non-doms’ overseas finances, as well as retrospective taxation. Darling’s amendment seeks to clarify this is not the case, with Revenue and Customs stating that non-doms would not be required to make ‘any additional disclosures’ about income and gains falling outside the UK tax net. Furthermore they won’t be taxed on gains realised in offshore trusts before April.

Meanwhile business is lobbying for further concessions. The UK tax net will still extend to non-doms’ offshore trusts, which is certain to not sit well. It has been suggested this will afflict a wide range of industry, from private equity to ship broking, and is a key reason for fears over a possible brain drain as investors seek more favourable conditions elsewhere.

Gordon Brown has of course always been keen to show how friendly he is with business. But after Darling’s climb down over Capital Gains Tax, critics have a strong argument that Labour is less business’ friend than its plaything. It could be said that every time the Government gets an unfavourable reaction from business to a new measure it simply changes it.

Regardless of how all this wrangling ends, the damage may already have been done. Even if they’re not put off by the government’s actual tax measures, foreign investors may still be deterred by the air of uncertainty hanging over business conditions on these shores. Darling’s activities hardly present the UK as the bastion of stability that many foreign investors naturally desire. 

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