Labour pledges to scrap non-dom tax status; could ‘disable the luxury housing market’

Labour has pledged to abolish non-domicile tax status if it wins the general election next month. The move might, according to one top-end estate agent, “totally disable the luxury housing market in the capital.”

Ed MilibandLeader Ed Miliband has confirmed his party would scrap the 200-year-old system (introduced by William Pitt the Younger) that allows UK residents with permanent homes abroad to legally limit the amount of tax paid on overseas earnings.

Labour says the rules – which it calls a “set of loopholes”  – are being used “to avoid tax on UK income and property” and adds that “most other countries require people who live there to pay tax on their worldwide income and gains”.

The Conservatives have retorted by saying the idea is “confused”, adding that they had “raised more money from non-doms than other governments”.

It’s estimated a clampdown would affect around 116,000 people in the UK, and there’s been quite the backlash from the capital.

Becky Fatemi, Managing Director of  Rokstone: “If non-dom status is abolished it will totally disable the luxury housing market in the capital.”

Nicholas Leeming, Chairman of Jackson-Stops & Staff: “The Labour party is out to target the wealth creators in this country and will effectively close down London to international businesses and investors if it continues to punish this sector. We have created a world-class city and we want to continue to encourage people to buy homes here and invest in the capital. The move to scrap the non-dom tax status will impact on every aspect of life in the capital – jobs, the property market, shops, restaurants and businesses.  London needs to remain open for business.”

Simon Walker, boss of the Institute of Directors: “The politics may make sense but the economics is dismal.

“The proposal could inflict irreparable damage to London’s private equity and hedge fund industry. There may not be much public sympathy for that sector but its absence from the capital would be noticed.”

Scott Corfe, Associate Director at the Centre for Economics and Business Research: “Abolishing non-dom tax status would in all likelihood cost the Government money in the medium term. Non-doms are among the UK’s most internationally mobile people and if they’re subject to a higher tax bill many will leave and move to more favourable tax regimes.”

Here’s Labour’s rationale…

Most people in the UK pay UK tax on their total income. Non-doms don’t.

If you live in the UK, you probably pay UK tax on all of your income and gains, wherever in the world it comes from. But some people don’t. They are so-called “non-doms” – people who claim “non-UK domicile” status even if they make the UK their home and have lived here for many years. It’s a set of loopholes that simply isn’t available to most working families in Britain.

The non-dom tax rules are ridiculous.

It isn’t just wealthy foreigners living here who pay less tax through non-dom status. The rules are used by people who by any normal standards are British, so that they can pay less tax. For example, people who were born here, brought up here and live here can claim non-dom status if their father (that’s right, just their father, not their mother) was born abroad. And people born and brought up here, who have lived abroad for a while and then moved back, can pay less tax as non-doms by saying that they plan to move abroad again in future, and by doing simple things like buying a burial plot overseas or even subscribing to foreign newspapers.

The non-dom rules can be abused.

The rules are supposed to allow non-doms not to pay tax on their overseas income. But they are also used to avoid tax on UK income and property. For example, non-doms can use offshore trusts to buy expensive UK homes and avoid inheritance tax, or to loan money to themselves and then receive repayments tax-free. That can’t be right.

Other countries don’t let people have non-dom status.

Our system, which was set up more than 200 years ago to suit people working overseas in the British Empire, isn’t copied elsewhere in the world. Most other countries require people who live there to pay tax on their worldwide income and gains. For example, US residents – wherever they come from – pay US tax on their worldwide income.

Labour will abolish non-dom status.

Our principle is simple. Everyone should play by the same rules. If you make the UK your home, you should pay full UK tax on your whole income – just like most people who live in the UK currently do. The only exemptions should be those who are genuinely resident in the UK on a temporary basis – like students, or people living here for a short time on business: we’ll consult on the details of this. By closing down these loopholes Labour will raise hundreds of millions of pounds in additional tax revenues, which will be used to help reduce the deficit.

The Tories want to keep the non-dom rules as they are.

They’re happy to increase taxes like VAT which hit working people across the UK, but they won’t abolish the non-dom rules. It’s clear whose side they’re on. They’ve cut taxes for people on the highest incomes over £150,000 and refused to rule out cutting them even further. They stand up for the millionaires who fund them, not for working families.

Read the Government’s definition of a “non-domicile” resident here

Image via The CBI (CC-BY-SA-2.0)